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Finance Bulletin: June 2006

Economic Update

California's late long rainy season heightened concerns over the risks posed by cooling housing markets.  It is currently impossible to judge whether employment losses in March and April were merely the result of atypical weather or a sign of slowing due to the effects of higher interest rates on construction and other employment.

• After nine consecutive gains in nonfarm payroll employment, California lost a total of 18,200 jobs in March and April, with construction accounting for 17,300 of them.  May, however, brought dry weather and a job gain of 14,800, spread over a broad sweep of industries, including construction.  The state accounted for about 20 percent of the national job gain in May—much more than its share—but the 75,000 job gain in the nation was widely considered disappointing.
• Eight of the California's 11 major industry sectors gained jobs in May.  Educational and health services led the way with a gain of 5,300 jobs.  Construction added 3,700, information, 2,900, government, 2,700, manufacturing, 2,000, other services, 1,600, trade transportation and utilities, 600, and financial activities, 500.  The leisure and hospitality sector had the largest job loss, 3,200.  Professional and business services lost 900 and natural resources and mining, 400.
• Over the 12 months from May 2005 to May 2006, California nonfarm payroll employment grew by 233,700 jobs, or 1.6 percent, as compared to 1.4 percent in the nation.  Nine of California's major industry sectors gained jobs over the 12 months.  Professional and business services added 63,200, leisure and hospitality, 39,100, educational and health services, 29,400, trade, transportation, and utilities, 28,400, construction, 25,800, government, 21,900, financial activities 19,100, other services, 9,900, and natural resources and mining, 700.  Manufacturing and information both lost 1,900 jobs in the last twelve months.
• Permit issuances for home building slowed for the second consecutive month in April.  Home building activity in March and April combined was down nearly 18 percent from the same months of 2005.  A modest improvement in multifamily permitting was overwhelmed by a near-25 percent year-over-year drop in the single family sector.
• Nonresidential construction permitting slowed in April as well, but for the first four months of the year as a whole, was still up significantly from a year ago.  Commercial building growth was led by strong gains in office, hotel/motel, and parking garage construction.
• Home price stability carried into April.  The median price of existing single-family homes sold in April was $562,380—the highest median since August 2005 and within the $540,000-to-$570,000 range that California's median has been in since June 2005.  The April median price was 10.4 percent higher than a year ago.  While still strong, this was the most modest year-over-year price gain since November 2001.  The pace of home sales faltered in April, reaching a seasonally adjusted annual rate of 516,960 units—a 21 percent drop from a year ago.  The pace of home sales during the first four months of 2006 was down over 19 percent from the same months of 2005.
• The pace of home sales faltered in April, reaching a seasonally adjusted annual rate of 516,960 units—a 21-percent drop from a year ago.  The pace of home sales during the first four months of 2006 was down over 19 percent from the same months of 2005.

Monthly Cash Report

Preliminary General Fund agency cash for May was $379 million above the 2006-07 May Revision forecast of $5.756 billion.  Including adjustments for actual April receipts that were not known when the May Revision forecast was prepared, year-to-date revenues are $380 million above the $82.950 billion that was expected.  Although May is a significant revenue month, June is more important, because estimated payments for personal income tax filers and calendar-year corporations are due mid-month.  More than $10.3 billion is forecast for June.

• Personal income tax revenues to the General Fund were $168 million above the month’s forecast of $2.319 billion.  Withholding receipts were $144 million above the estimate of $2.36 billion and other receipts were $27 million over the projected level of $1.065 billion.  Refunds issued in May amounted to the $1.064 billion that was anticipated.  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 May was $3 million above the forecast of $42 million.
• Sales and use tax receipts were $138 million above the month’s forecast of $2.908 billion.  May represents the balance of the final payments for first quarter taxable sales as well as the first prepayment for second quarter sales.  Final payments for the first quarter and the second quarter prepayments were higher than anticipated.  Recent higher gas prices may mean that a portion of this revenue will be deposited in accounts for transportation purposes when detailed allocation data are available in mid-2006-07.
• Corporation tax revenues were $339 million, $12 million above the month’s estimate of $211 million. Prepayments were $48 million above the forecast of $175 million. Other payments were $75 million higher than the forecast of $97 million. Refunds were $5 million below the projected level of $61 million. May is not a particularly large payment month for this tax.
• Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes came in $2 million above the $47 million that was expected. The remaining revenues—pooled money interest income and “other” revenues—were $57 million below the month’s estimate of $271 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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