Department of Finance
915 L Street
Sacramento, CA 95814

Search

My CA

Finance Bulletin: October 2006

Economic Update

The cooling housing market had predictable effects on the California economy during the first eight months of 2006.  Several industries closely tied to real estate slowed significantly.  However, a broader economic slowdown did not emerge.

• Home building stabilized in August following a dramatic drop in July.  The pace of residential permitting rose to 158,000 units (seasonally-adjust annual rate) based on a strong pickup (31 percent) in multi-family permitting.  Single-family construction declined for the second consecutive month.

• In the first eight months of 2006, the pace of homebuilding was down nearly 16 percent from the same months of 2005.  Single-family permitting was down over 24 percent, while multi-family was up 7.4 percent.  Construction slowed in nearly all major metropolitan areas of California, with the Sacramento, San Diego, and Stockton regions experiencing the sharpest declines of 42, 39, and 42 percent, respectively.  Orange County was the only area which permitted more units.

• In contrast, nonresidential construction sped up significantly during the first eight months of 2006 compared to a year earlier.  The value of nonresidential construction permits issued was up 20 percent, led by strong gains in office, hotel/motel, and parking garage construction.  Permitting accelerated in most major metropolitan areas.  The strongest acceleration occurred in Orange County and the Riverside-San Bernardino, San Francisco, and San Diego regions.  Activity slowed only in the Los Angeles and Stockton areas, down 2 percent and 26 percent, respectively.

• Home sales in California slowed in August for the fifth consecutive month.  Sales of existing single-family homes slipped to a seasonally adjusted annual rate of 442,200 units.  This was 30 percent lower than a year earlier and was the slowest sales pace since June 1997.  Overall, existing home sales during the first eight months of 2006 were down 23 percent from the same months of 2005.

• California's median single-family home price reached $576,360 in August, an all-time record according to the California Association of Realtors.  This stretches the upper bounds of the $540,000-$570,000 range that California home prices have been in since June 2005.  On a year-over-year basis, however, home prices were nearly stagnant in August.  The statewide median price was up only 1.6 percent from a year earlier.  This was the slowest annual increase since March 1997.

• The falloff in real estate activity in 2006 had a predictable impact on California's labor markets.  After growing an average of 6.4 percent in 2004 and 2005, construction employment expanded only 3.7 percent during the first eight months of 2006 compared to the same months of 2005.  While growth slowed in all but one construction sub-sector, residential building slowed the most dramatically. 

• Retail trade employment was also affected.  Its 0.9-percent growth was less than half its 2005 pace.  The slowdown was most pronounced at traditional department stores and building materials and supply stores.

• Finance and real estate industries appear to have been affected more than retail trade.  Mortgage lending activity exploded from 2001 to 2003, as long-term interest rates declined steadily, but then slowed when interest rates bottomed out between 2004 and 2005.  Year-over-year employment growth at nondepository credit intermediation firms (which includes mortgage lenders) slowed to only 3.2 percent during the first eight months of 2006.  The growth rate of real estate agents and brokers in 2006 started out strong and but then faded quickly.

Monthly Cash Report

Preliminary General Fund agency cash for September was $5 million below the 2006-07 Budget Act forecast of $10.304 billion.  Year-to-date revenues are $376 million above the $21.187 billion that was expected.

• Personal income tax revenues to the General Fund were $226 million above the month’s forecast of $5.068 billion.  The gain was attributed to estimated payments, which were $337 million above the projected level of $2.501 billion – an impressive 22.8 percent increase over the prior year.  Estimated payments are made on non-wage or investment income, such as capital gains.  It is not known at this time how much of the strength will be ongoing through the 2006 tax year and how much may be due to taxpayers basing their first few estimated payments on their robust 2005 tax year income.  Withholding, which comes largely from current wages, was $54 million below the estimate of $2.442 billion – a 2.7-percent year-over-year increase.  Other receipts were $52 million below the forecast of $382 million and refunds were $1 million above the $166 million that was expected.  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 September was $4 million above the forecast of $91 million.  Year-to-date General Fund income tax revenues are $388 million above estimate.
• Sales and use tax receipts were $151 million below the month’s forecast of $2.241 billion.  September represents the second prepayment for third quarter taxable sales.  A more complete picture of third quarter sales activity will be available when final payments for the quarter are received in late October and early November.  At this time, it is not known how much the sharp drop in gasoline prices which began in late August and the expected decreases in consumer spending are contributing to lower sales tax receipts.  Year-to-date, the sales tax cash is $195 million below forecast.   
• Corporation tax revenues were $92 million below the month’s estimate of $2.316 billion.  Prepayments were $92 million lower than the forecast of $2.179 billion and other payments were $3 million below the $227 million that was expected. Refunds were $3 million below the projected level of $90 million.  Year-to-date revenues are $10 million below estimate.
• Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes matched the $551 million that was expected.  The remaining revenues—pooled money interest income and “other” revenues—were $12 million above the month's estimate of $128 million.  

For more information, please contact the California Department of Finance, Room 1145, State Capitol, Sacramento, CA or call (916) 323–0648.

• Conditions of Use
• Privacy Policy
• e-Mail Webmaster