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Finance Bulletin: August 2006

Economic Update

California gained jobs in June 2006 and its unemployment rate dropped slightly. Nonfarm employment growth, while modest, was broadbased, rising in eight out of eleven major industries. The state's housing market, however, cooled during the first half of 2006. Residential construction slowed for the fourth consecutive month in June.

• California nonfarm payroll employment rose by 11,000 in June 2006. Nearly all of these gains were accounted for by service industries, led by information and business services.
• Eight of California's 11 major industry sectors gained jobs in June. Information had the largest gain with 3,300. Professional and business services added 3,200; leisure and hospitality, 1,900; educational and health services, 1,800; manufacturing, 1,000; government, 900; trade transportation, 700; and natural recourses and mining, 100. The industries losing jobs were financial activities, 1,000 jobs; construction, 500; and other services, 400.
• Over the 12 months from June 2005 to June 2006, California nonfarm payroll employment grew by 235,600, or 1.6 percent.  All 11 major industries gained jobs. The biggest gainer was professional and business services with 60,200 jobs. Leisure and hospitality added 42,100 jobs; trade transportation and utilities, 31,100; educational and health services, 30,500; government, 22,500; construction, 19,200; financial activities, 16,900; other services, 9,300; manufacturing, 1,600; information, 1,500; and natural recourses and mining, 700.
• California's unemployment rate was 4.9 percent in June, a slight decrease from May's 5.0 percent. The national unemployment rate was 4.6 percent in June.
• In June, total residential construction permit issuances increased 20 percent from May, but were still 9.5 percent lower than in June 2005.  During the first six months of 2006, the pace of homebuilding slowed nearly 11 percent from the same months of 2005 due to a nearly 19 percent drop in the single-family sector.  Multi-family construction actually improved during the first half of 2006, rising nearly 11 percent from the same months of 2005.
• Nonresidential construction in June increased 8 percent from June 2005.  Commercial construction was up 26.3 percent from a year ago, led by strong gains in office, hotel/motel and parking garage construction.  Permitting in the industrial sector was off 24.2 percent from a year ago.
• Existing home sales in June slid for the third consecutive month, falling 0.9 percent to a seasonally adjusted annual rate of 483,690 units. This is a 26.3 percent drop from a year earlier and was the slowest sales pace since December 2001.  Overall, existing home sales during the first half of 2006 were down nearly 21 percent from the same months of 2005.
• Despite the drop in sales, home prices rose in June. The median price for single family home sold in June was $575,800-a new record high, although only slightly above the $540,000-$570,000 range that it had been in since June 2005. With a 6.2 percent year-over-year price gain, this was the second consecutive month of sub-10 percent price gains.

Monthly Cash Report

Preliminary General Fund agency cash for July was $424 million above the 2006-07 Budget Act forecast of $4.516 billion.

• Personal income tax revenues to the General Fund were $24 million below the month’s forecast of $2.589 billion.  Withholding receipts were $3 million lower than the projected level of $2.360 billion.  Other receipts were $16 below the anticipated $469 million and refunds came in $5 million over the estimate of $194 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 amounted to the $46 million that was expected. 
• Sales and use tax receipts were $430 million above the month’s forecast of $1.502 billion.  July represents the final payment for second quarter taxable sales, which was due on July 31.  Historically, a substantial portion of this payment is received in early August.  Based on the first few days of August cash, it appears that most of the July gain is due to the timing of tax receipts: lower amounts of July payments being received in August than is the case in most years.  This suggests that August revenues will be less than forecast by an equivalent amount.  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 $65 million above the month’s estimate of $242 million.  Prepayments were $72 million higher than the forecast of $225 million and other payments were $3 million above the $103 million that was expected.  Refunds were $10 million above the projected level of $86 million.
• Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes came in $3 million below the $60 million that was expected.  The remaining revenues—pooled money interest income and “other” revenues—were $44 million below the month’s estimate of $123 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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