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Finance Bulletin: August 2005

Economic Update

California's economic expansion appeared to be well-established and well balanced at mid-year. California enjoyed sustained growth of jobs and wages, robust business profits, a healthy real estate market, and expanding home and business construction activity.

• California added 15,600 industry jobs in June, essentially garnering its share of the nation's 146,000 job gain. From June 2004 to June 2005, nonfarm payroll employment increased by 273,500, or 1.9 percent, which beats the 1.6 percent growth for the nation as a whole.
• Broad-based job gains continued as 9 of the 11 major industry sectors expanded in June. Construction added 8,100 jobs; Professional and Business Services, 5,000; Information, 4,000; Trade, Transportation and Utilities, 2,000; Other Services, 1,700; Financial Activities, 1,600; Manufacturing, 300; Natural Resources and Mining, 100; and Educational and Health Services, 100. Both the Government and Leisure and Hospitality sectors, however, reversed course in June, losing 6,300 and 1,000 jobs respectively.
• Over the 12 months ending with June, nonfarm employment rose by 65,300 in Professional and Business Services; 54,000 in Construction; 44,100 in Leisure and Hospitality; 31,200 in Educational and Health Services; 21,300 in Financial Activities; 20,900 in Trade, Transportation and Utilities; 19,500 in Information; 12,400 in Other Services; and 6,200 in Manufacturing. In contrast, employment fell by 1,300 in Government; and 100 in Natural Resources and Mining.
• The state's unemployment rate rose 0.1 percentage point to 5.4 percent in June. This is the first increase since September 2004. A rise in civilian employment — 10,600 — was overshadowed by an increase in the number of persons unemployed — 14,100. The national unemployment rate dropped by 0.1 percentage point to 5.0 percent in June.
• Home building improved in June with new permits issued for 226,000 units, on a seasonally adjusted annual rate basis. This improvement was based on a surge of single-family permitting — up over 11 percent from May — that more than made up for a slowdown in multi-family permitting. With June's acceleration, residential construction permitting during the first six months of 2005 all but matched the pace set during the same months of 2004.
• Nonresidential construction also picked up handily in June. The value of nonresidential permits issued was up nearly 17 percent from May. A $200 million pharmaceutical manufacturing facility in Vacaville (Solano County) was responsible for a 188-percent leap in industrial construction (not seasonally adjusted).
• During the first six months of the year, nonresidential construction permitting was up over 11 percent from the same months of 2004. Within commercial building sectors, hotel/motel construction was the growth leader in absolute terms.
• Persistently low mortgage interest rates pushed up existing home sales and prices in June. The median price of existing single-family homes sold in June climbed to $542,720, a 16-percent increase from a year earlier. The pace of home sales recovered in June — to a seasonally adjusted annual rate of 656,310 units — after a modest slowdown in May. For the first six months of 2005, the median single-family home price was up over 16 percent from the same months of 2004. The pace of home sales increased by 3.6 percent over the same period.
• California's personal income grew 7.1 percent in the first quarter of 2005 on a year-over-year basis, outstripping the nation for the fifth consecutive quarter. The fastest growing component was Nonfarm Proprietor's Income (owner-operated businesses profits), which grew more than 10 percent over the year. Wages and salaries — the largest component of personal income — also achieved strong growth, expanding nearly 8 percent. Supplements to wages and salaries (benefits) constituted the only major component in which the nation exceeded California.

Monthly Cash Report

Preliminary General Fund agency cash for July was $52 million above the 2005-06 Budget Act forecast of $4.288 billion. Year-to-date revenues are $52 million above the $4.288 billion that was expected.

• Personal income tax revenues to the General Fund were $64 million above the month’s forecast of $2.369 billion. Withholding was $4 million below the month’s estimate of $2.249 billion and other receipts were $94  million above the projected level of $351 million. Refunds were $24 million higher than the anticipated $189 million. In November 2004, the voters passed Proposition 63, which imposed a 1 percent surcharge on taxpayers' taxable income above $1 million to fund mental health service programs. Pursuant to the Proposition, the cash amount transferred to the Mental Health Services Fund (MHSF) during fiscal year 2005-06 is 1.76 percent (0.0176) of total monthly personal income tax collections. The special fund amount transferred to the MHSF in July was $2 million above the forecast of $42 million.
• Sales and use tax receipts were $60 million below the month’s forecast of $1.476 billion. July represents the final payment for second quarter taxable sales, which was due on Sunday, July 31, and a portion of this payment is received in early August. A more complete picture of second quarter sales will be available in mid-August, when all of the second quarter receipts have been processed.
• Corporation tax revenues were $17 million above the month’s estimate of $275 million. Prepayments were $44 million above the forecast of $22  million. Other payments were $65 million below the forecast of $153 million. Refunds were $38 million less than the projected level of $80 million.
• Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes came in $29 million above the $78 million that was expected. The remaining revenues — pooled money interest income and “other” revenues — were $2 million above the month’s estimate of $90 million. Although July insurance tax receipts exceed the projection by a large percentage, this is not likely to reflect a trend since the increase is due primarily to a one-time payment.

For more information, please contact the California Department of Finance, Room 1145, State Capitol, Sacramento, CA or call (916) 323–0648.

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