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Finance Bulletin: December 2006

Economic Update

• California gained a modest 9,300 nonfarm payroll jobs in October, which brings the state's average monthly gain down to 13,450 for the first 10 months of 2006.  The average monthly gain in 2005 was nearly 24,000.  Weak employment in the construction and real estate-related sectors accounted for nearly all of this slowdown.  Over the 12 months ending in October, California nonfarm employment grew by 163,800 jobs, or 1.1 percent.  Over that period, jobs grew by 1.5 percent in the nation.
• Job growth was narrowly based in October, with only five of the 11 major industry sectors adding jobs.  Professional and business services led the way with a gain of 8,700.  Leisure and hospitality contributed 4,700. Education and health services added 1,700, financial activities, 800, and natural resources and mining, 300.
• Employment declined in six sectors in October. Government lost the most jobs, with 2,000.  Trade, transportation, and utilities lost 1,600, manufacturing, 1,500, information, 1,100, construction, 600, and other services, 100.
• Eight major industry sectors gained jobs over the 12 months ending in October. Professional and business services added 48,000, leisure and hospitality, 37,600, government, 34,600, education and health services, 26,600, financial activities, 10,900, other services, 8,500, trade, transportation, and utilities, 2,500, and natural resources and mining, 900.  Employment fell in only two industries over that period.  Construction lost 4,000 jobs and information, 1,800.  Manufacturing employment was unchanged from a year ago.
• October's unemployment rate, 4.5 percent, was the lowest in at least 30 years (the extent of the current official data series).  A year ago, the state's unemployment rate was 5.2 percent.  The national unemployment rate fell by 0.2 percentage point to 4.4 percent in October.
• Both single and multi-family home building slowed in October.  This was the fourth consecutive month-over-month reduction of single-family construction permitting.  Driven by slower single-family construction, total residential permitting, 115,000 units at an annual rate, was down 32 percent from the pace posted a year earlier.   
• Looking at the first ten months of 2006 as a whole, total home construction permitting was down over 21 percent from the same months of 2005.  Slower single-family construction accounted for all of this slowdown as multi-family permitting ran slightly ahead of the 2005 pace. 
• The value of nonresidential construction permits issued also declined in September, the second consecutive month-over-month drop.  Total permit value dropped 8.6 percent in October, following an 8.0-percent drop in September.  For the first ten months of 2006 as a whole, the value of nonresidential construction permits issued was up nearly 19 percent from the same months of 2005.  This growth was led by strong gains in office, hotel/motel, and parking garage construction.  
• Home sales slipped slightly in October, the seventh month-over-month slide out of the first 10 months of 2006.  Sales of existing single-family homes dropped 0.3 percent to a seasonally adjusted annual rate of 443,320 units.  Existing home sales dropped nearly 29 percent over the year ending in October.  For the first 10 months of 2006 as a whole, home sales were down 24 percent from the same months of 2005.
• California home prices also dipped in October.  The median price of existing single-family homes sold in October—$548,680—dropped 0.8 percent from September.  Since reaching a record-setting peak in August, California's median home price has dropped 4.8 percent.  October was the third consecutive month of sub-2 percent year-over-year price appreciation.

Monthly Cash Report

Preliminary General Fund agency cash for November was $657 million below the 2006-07 Budget Act forecast of $5.654 billion.  The bulk of the month’s decline appears to be related to the timing of cash receipts; the remainder is attributable to larger refunds.  Year-to-date revenues are $47 million below the $32.682 billion that was expected.

• Personal income tax revenues to the General Fund were $19 million below the month’s forecast of $2.407 billion.  Withholding receipts were $138 million above the estimate of $2.49 billion but this gain was offset by refunds, which were $151 million above the forecast of $466 million.  In addition, other receipts were $6 million below the projected level of $426 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 2006-07 is 1.76 percent (0.0176) of total monthly personal income tax collections.  The special fund amount transferred to the MHSF in October was $43 million, as expected.  Year-to-date General Fund income tax revenues are $349 million above estimate.
• Sales and use tax receipts were $127 million below the month’s forecast of $2.665 billion.  November cash includes the final payments for third quarter sales, as well as the first prepayment for fourth quarter sales.  Early November receipts detail are now available and show that October’s cash strength was due to posting to October cash that is normally seen in early November.  Year-to-date, the sales tax cash is $24 million below forecast.   
• Corporation tax revenues were $192 million below the month’s estimate of $41 million.  Prepayments were $72 million lower than the forecast of $171 million and other payments were $18 million below the $93 million that was expected.  Refunds were $102 million above the projected level of $223 million, due in part to amnesty-related refunds.  Year-to-date revenues are $235 million below estimate.
• Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes matched the month's forecast of $61 million.  Of the remaining revenues, pooled money interest income was $7 million below the forecast of $47 million and "other" revenues were $312 million lower than the November estimate of $433 million primarily due to the timing in the receipt of unclaimed property revenues.  

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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