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Finance Bulletin: December 2005

Economic Update

While the California economy is improved from a year ago, recent evidence points to moderating growth.  Labor markets produced modest job gains in October.  Both home building and commercial construction are at healthy levels, but have followed a see-saw pattern of gains and losses for the last several months.  Although home prices are little changed from four months ago, year-over-year gains are still strong.

• California's labor markets improved modestly in October.  The state gained 6,800 jobs, but the unemployment rate increased a tenth of a percentage point to 5.2 percent.  Earlier-than-normal starts to school years gave the Government sector the largest loss (7,100) in October.
• Six of the 11 major industry sectors gained jobs in October.  Leisure and Hospitality added 8,600, Construction, 4,500, Educational and Health Services, 4,000, Trade, Transportation and Utilities, 3,500, Manufacturing, 2,400, and Natural Resources and Mining contributed 100.
• Five sectors saw employment fall in October, with Government losing 7,100 jobs; Professional and Business Services, 4,200, Information, 2,700, Other Services, 2,100, and Financial Activities, 200.
• From October 2004 to October 2005, nonfarm payroll employment grew by 188,000 or 1.3 percent, as compared to 1.4 percent in the nation.
• Over the year, nonfarm payroll jobs rose in 10 of the 11 major industry sectors: 63,400 in Construction, 32,400 in Leisure and Hospitality, 26,000 in Educational and Health Services, 23,200 in Professional and Business Services, 17,100 in Government, 15,300 in Trade, Transportation and Utilities, 11,600 in Financial Activities, 3,100 in Manufacturing, 800 in Other Services, and 100 in Natural Resources and Mining.
• Only the Information sector, which has lost jobs each month since June, had less employment than a year ago with 5,000 fewer jobs.
• At 5.2 percent, the state's unemployment rate in October was down considerably from the 6.0 percent of a year earlier.  The national unemployment rate fell 0.1 percentage point to 5.0 percent.  The state's labor force grew by 68,000 in October while the number of unemployed Californians increased by 15,000.
• After surging in September, homebuilding slowed in October.  Residential building permits were issued at a seasonally adjusted annual rate of 153,000 units in October, 44 percent below the September pace.  Residential building permit issuances averaged 213,000 units during the first ten months of 2005, a 2.4-percent improvement on the same months of 2004.
• The value of nonresidential building permits issued also weakened in October, but was up 12.8 percent from a year earlier.  For the first ten months of 2005 as a whole, nonresidential construction increased 12.7 percent from the same months of 2004.
• The median price of existing single-family California homes declined for the second consecutive month in October.  Home prices typically weaken during the traditional back-to-school season.  The median price of existing single-family homes sold in October was $538,770, a 1.0-percent drop from September.  This is still 17.2 percent above the median a year earlier. 
• California's home prices appear more stable.  The median price declined during three out of the last four months.  The pace of home sales was essentially flat during the first ten months of the year.  Home sales slowed in October to 621,530 units on a seasonally adjusted annual rate basis.  The inventory of homes for sale, as well as mortgage interest rates, have both risen.  

Monthly Cash Report

Preliminary General Fund agency cash for November was $145 million above the 2005-06 Budget Act forecast of $5.255 billion.  Year-to-date revenues are $1.883 billion above the $29.791 billion that was expected.

• Personal income tax revenues to the General Fund were $21 million below the month’s forecast of $2.42 billion.  Withholding was $87 million below the estimate of $2.568 billion and other receipts were $122 million above the projected level of $311 million.  Refunds were $56 million higher than the anticipated $416 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 this month was $43 million, which was the same amount as estimated.  Year-to-date General Fund tax revenues are $890 million above estimate.
• Sales and use tax receipts were $1 million below the month’s forecast of $2.498 billion.  November cash includes the final payment for third quarter sales, as well as the first prepayment for fourth quarter sales.  Through November, 2005-06 sales tax cash is $287 million above expectations. 
• Corporation tax revenues were $10 million, $160 million above the month’s estimate of -$150 million.  Prepayments were $57 million below the forecast of $155 million.  Other payments were $54 million lower than the forecast of $128 million.  Refunds were $271 million below the projected level of $433 million.
• Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes came in $2 million above the $59 million that was expected.  The remaining revenues—pooled money interest income and “other” revenues—were $5 million above the month’s estimate of $428 million.

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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