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Finance Bulletin: November 2006

Economic Update

Even though the state's housing markets were still sliding, California enjoyed good job gains in August and September.  Thus far, the impact of the housing market slowdown has been limited to those sectors most closely tied to real estate and home building.  Elsewhere, the pace of job growth actually improved during the first nine months of the year compared to gains made in 2005.

• California gained 17,300 industry jobs in September—accounting for 34 percent of the entire nation's gain.  Even though this was not as spectacular as the 36,800 gain in August, it was better than the 11,000 average monthly gain achieved during the first half of the year. 

• Despite the strong gains in August and September, slowing construction activity has been a drag on overall growth in 2006.  Through September, the state added 14,000 new jobs each month on average, much less than the 24,000 monthly-gain in 2005.  Outside of construction, however, the gains are closer to last year's pace—16,000 versus 20,000 in 2005.  Moreover, the non-construction gains in August and September were comparable to the strongest monthly gains made in 2005. 

• Job growth was broad-based in September as 10 of the 11 major industry sectors added jobs.  Education and health services led the way with a gain of 4,600 jobs.  Manufacturing added 4,000 and leisure and hospitality, 3,900.  Professional and business services contributed 2,500, and information and financial activities each added 1,000.  Other services and government each added 400, construction, 300, and natural resources and mining, 100.  Trade, transportation, and utilities posted the only loss—900 jobs.

• California's unemployment rate fell by 0.1 percentage point to 4.8 percent in September. The national unemployment fell by 0.1 percentage point to 4.6 percent.  The state's unemployment rate was 5.2 percent a year ago in September 2005.
  Both single and multi-family home building slowed in September.  Total residential permitting, at an annual rate of 148,000 units, was down 46 percent from the record-setting pace reached in September 2005.   This was the third consecutive month-over-month reduction of single-family construction permitting. 

• Looking at the first nine months of 2006 as a whole, total home construction permitting was down over 20 percent from the same months of 2005.  The deceleration resulted entirely from diminished single-family construction, which was down nearly 29 percent.  Multi-family construction maintained last year's pace. 

• The value of permitted nonresidential construction also slowed in September, dropping nearly 10 percent from August—just the third month-over-month drop this year.  A sharp drop in store construction was the chief culprit—potentially a fallout from cooling real estate markets.  Outside of the retail sector, increased office and parking garage construction offset reduced hotel/motel, recreation and service station construction.  

• Over the course of the first nine months of 2006, the value of nonresidential construction permits issued was up nearly 17 percent from the same period in 2005.  These gains were led by accelerating office, hotel/motel, and parking garage construction.  A full percentage point of the year-to-date gain was accounted for by a surge of hotel/motel permitting in January 2006. 

• Home sales held steady in September, interrupting a string of five consecutive month-over-month declines.  Sales of existing single-family homes were essentially unchanged at a seasonally adjusted annual rate of 444,780 units.  This was nearly 32 percent lower than a year earlier, when home sales reached a near record high.  Overall, home sales during the first nine months of 2006 were down 24 percent from the same months of 2005.

• California home prices slipped in September.  The median price of existing single-family homes sold in September—$553,050—dropped 4 percent from August.  This price, though, is well within the high-low band that the state's median has been in since June 2005.  As in August, the September median price was up less than 2 percent from a year earlier.

Monthly Cash Report

Preliminary General Fund agency cash for October was $204 million above the 2006-07 Budget Act forecast of $5.841 billion.  Year-to-date revenues are $605 million above the $27.028 billion that was expected.

• Personal income tax revenues to the General Fund were $16 million below the month’s forecast of $3.093 billion.  Withholding was $4 million above the estimate of $2.537 billion and other receipts were $80 million above the projected level of $907.  The combined gain was offset by refunds, which were $100 million higher than the month's estimate of $296 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 $55 million, as expected.  Year-to-date General Fund income tax revenues are $373 million above estimate.

• Sales and use tax receipts were $268 million above the month’s forecast of $2.17 billion.  The final payment for third-quarter taxable sales was due at the end of October and a portion of this payment is received in early November. At the time this bulletin was prepared, early November receipts were not yet available; so it was not possible to determine if the strength in October revenues was due to higher sales or earlier receipt of revenues that would otherwise show up in November’s receipts.  Year-to-date, the sales tax cash is $96 million above forecast.

• Corporation tax revenues were $37 million below the month’s estimate of $367 million.  Prepayments were $13 million higher than the forecast of $269 million and other payments were $48 million below the $242 million that was expected. Refunds were $2 million above the projected level of $144 million.  Year-to-date revenues are $46 million below estimate.

• Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes were $1 million below the $58 million that was expected.  The remaining revenues—pooled money interest income and “other” revenues—were $10 million lower than the month's estimate of $153 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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