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Finance Bulletin: March 2006

Economic Update

The latest California labor market report, released by the Employment Development Department at the beginning of March, incorporated the annual benchmark revisions to the historical employment statistics. These revisions showed that California's job growth throughout most of 2005 was stronger than previously reported but was not as strong at the end of the year.

• California gained 18,300 nonfarm payroll jobs in January. December's gain, initially reported as 24,300, was revised down to 4,900—a large downward revision—and November's gain was revised down from 32,500 to 24,400. But the revisions to the July through October employment gains were all positive and totaled 81,100. So, job growth in the second half of 2005 was considerably stronger than initially reported, averaging 29,900 per month instead of 21,000 per month.
• For 2005 as a whole, nonfarm payroll employment grew by 1.8 percent from 2004. Employment grew by 1.6 percent under the previous estimates.
• California's gain of 18,300 jobs in January was a considerable improvement over December's small gain, but weaker than the average monthly gain of 29,900 in the second half of last year. Still, employment in January was up 2.0 percent from the same month of 2005, while in the nation, employment grew by only 1.6 percent.
• Six of the 11 major industry sectors gained jobs in January. Trade, transportation, and utilities added 9,900 jobs; professional and business services, 9,800; leisure and hospitality, 4,600; educational and health services, 4,300; financial activities, 1,100; and government, 800. The largest job loss was 6,600 in information. Manufacturing lost 4,200; construction, 1,300; and natural resourc
• Nine of California's major industry sectors gained jobs over the 12 months ending in January 2006. Construction added 75,700; professional and business services, 65,900; leisure and hospitality, 41,700; trade, transportation, and utilities, 40,800; educational and health services, 28,500; government, 25,400; financial activities, 23,700; other services, 11,300; and natural resources and mining, 600. Only the manufacturing and information sectors lost jobs, losing 17,200 and 6,800 respectively. In total, 289,600 jobs were added.
• California's unemployment rate dropped to 4.9 percent in January from 5.1 percent in December. January's unemployment rate was the lowest since March 2001. The national unemployment rate was 4.7 percent in January.
• Home construction permitting has followed a consistent see-saw pattern of alternating monthly gains and losses since August 2005. Over the six months ending with January 2006, residential permitting was down over 8 percent from the same months a year earlier.
• Even though commercial construction also followed a see-saw pattern since August, the gains greatly outweighed the reductions. Over the six months ending with January 2006, the value of nonresidential permitting increased by over 27 percent from the same months a year earlier. Permits issued in January 2006 were up over 56 percent from a year ago. The improvement was driven largely by strong increases in office and hotel/motel construction.
• California home prices were essentially unchanged in January, lingering in the same $530,000-to-$550,000 neighborhood they've been in since June 2005 (except for the $570,000 spike in August). The median price of existing single-family homes sold in January was $551,300, a slight increase from December and nearly 14 percent higher than a year ago.
• In contrast, sales of existing single-family homes slowed for the fourth consecutive month in January, both on a month-to-month and a year-over-year basis. Sales of existing, single-family homes fell nearly 6 percent in January to a seasonally adjusted annual rate of 500,470 units. This was also a 24.1 percent drop from January 2005. Overall, the pace of home sale during the four months ending with January 2006 slowed 14 percent from from the same months a year earlier.

Monthly Cash Report

Preliminary General Fund agency cash for February was $312 million above the 2006-07 Governor's Budget forecast of $3.964 billion. Year-to-date revenues are $141 million above the $55.596 billion that was expected.

• Personal income tax revenues to the General Fund were $248 million above the month’s forecast of $1.199 billion. Withholding was $141 million above the month’s estimate of $2.518 billion and other receipts were $11 million over the projected level of $351 million. Refunds were $101 million below the anticipated $1.649 million. Since February is the first month of several significant months for 2005 tax year refunds, it is not clear how much of this month's variance may be due to cash flow. 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 was $5 million above the forecast of $21 million. Year-to-date General Fund tax revenues are $238 million above estimate.
• Sales and use tax receipts were $14 million above the month’s forecast of $2.381 billion. February cash includes the remaining portion of the final payment for fourth quarter 2005 sales, which was due January 31. In addition, the first prepayment for first quarter 2006 was due in February. Year-to-date, the sales tax cash is $55 million below expectations.
• Corporation tax revenues were $256 million, $55 million above the month’s estimate of $201 million. Prepayments were $25 million above the forecast of $126 million. Other payments were $19 million higher than the forecast of $149 million. Refunds were $11 million below the projected level of $74 million. Year-to-date, revenues are $99 million above estimate.
• Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes came in $24 million above the $50 million that was expected. The remaining revenues—pooled money interest income and “other” revenues—were $29 million below the month’s estimate of $133 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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