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Finance Bulletin: April 2007

Economic Update

California started 2007 off on a generally good economic footing.  The state's unemployment rate held steady at a very low rate. The state contributed more than its share of nonfarm job growth in February.  And recent real estate market indicators are reasons for cautious optimism.

• The state gained 27,600 nonfarm jobs in February, which more than made up for the 10,400 job loss in January.  California's gain accounted for over a quarter of the 97,000 national employment gain in February.  The state's good showing relative to the country, however, was partially the result of bad winter weather in much of the rest of the nation.
• Job gains were broad-based in February, with employment growth in 8 of California's 11 major industry sectors. Information led the way with a gain of 7,300, most of it in motion picture and sound recording.  Professional and business services followed with a gain of 6,700.  Private educational and health services added 4,400 jobs, leisure & hospitality 3,900, trade, transportation, and utilities 3,100, financial activities 1,200, construction 800, and government 600.  Other services lost 300 jobs and natural resources 100.  Employment was unchanged in manufacturing.
• Over the 12 months ending in February 2007, California nonfarm payroll employment grew by 230,700, or 1.5 percent. Professional and business services led with 61,000.  Trade, transportation, and utilities added 47,900, education and health services, 43,300, government 38,900, leisure and hospitality, 35,400, other services, 8,500, financial activities 3,500, and natural resources mining 1,600.  U.S. nonfarm payrolls also grew by 1.5 percent over that period.  Construction lost 4,400, manufacturing 3,400, and information 1,600.
• California's unemployment rate has been surprisingly steady, potentially signaling that a state of full employment has been established at a lower rate than held by conventional wisdom.  In February, the rate of unemployment was 4.8 percent for the third consecutive month and for the sixth time in eight months.  In February, civilian employment increased 1.5 percent on a year-over-year basis, which corresponds exactly to the pace of nonfarm employment growth during the same period.
• The pace of new home construction had picked up slightly in January, most likely due to unusually good weather. But in February, the pace of construction permitting for both single and multi family homes slowed considerably, to an annual rate of 122,000 units.  Overall home construction permitting was down nearly 32 percent during the first 2 months of 2007 compared to the same months of 2006.  The February drop may be troublesome as home building had stabilized around an annual pace of about 135,000 units over the three months ending with January 2007.
• The on going slump in home construction that began in late 2005 has been counterbalanced by strong gains in nonresidential construction activity.  The value of business construction permitting grew at a double-digit year-over-year pace consistently from April 2005 through March 2006, averaging over 24 percent.  Growth continued thereafter, but the rate slowed fitfully.  The value of nonresidential permits issued during the first two months of 2007 was up 8.7 percent from the same months of 2006.
• In February, sales of existing single-family home reached their highest level in eight months—464,560 units on a seasonally adjusted annual rate basis.  Moreover, the pace of home sales posted its smallest year-over-year decline in 14 months.  Since August of last year, the rate of home sales has hovered close to 448,000 units.

• The median price of single-family homes sold in February 2007 was $564,700, a 5.7-percent increase from a year earlier.  The median price rose in three out the most recent four months.  While this indicates that a bottom may have been reached, an uncomfortably high inventory of unsold homes and the roiling of the "sub-prime" mortgage market may mean that California's real estate markets are not out of the woods entirely.

Monthly Cash Report

Preliminary General Fund agency cash for March was $444 million below the 2007-08 Governor's Budget forecast of $5.989 billion. Year-to-date revenues are $1.291 billion below the $64.446 billion that was expected.

• Personal income tax revenues to the General Fund were $413 million below the month’s forecast of $2.074 billion.  Withholding receipts were $25 million above the estimate of $3.098 billion.  Other receipts were $265 million under the projected level of $945 million and refunds were $180 million above the anticipated $1.932 million.  April personal income tax receipts will be critical as final returns or extension requests for the 2006 tax year are filed.  Year-to-date General Fund income tax revenues are $1.652 billion below estimate.  Proposition 69 requires that 1.76 percent of total monthly personal income tax collections be transferred to the Mental Health Services Fund (MHSF).  The amount transferred to the MHSF in March was $7 million below the estimate of $37 million.
• Sales and use tax receipts were $140 million below the month’s forecast of $2.041 billion.  March cash includes the second prepayment for first quarter sales and use tax liabilities.  Year-to-date, the sales tax cash is $24 million below expectations.
• Corporation tax revenues were $117 million above the month’s estimate of $1.352 billion.  Prepayments were $78 million above the forecast of $534 million.  Other payments, which include the final payments for 2006 calendar year corporations, were $213 million higher than the $930 million that was expected.  Refunds were $174 million above the projected level of $112 million.  Year-to-date revenues are $396 million above estimate.
• Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes were $1 million above the month's forecast of $342 million.   The remaining revenues—pooled money interest income and "other" revenues—were $9 million lower than the estimate of $180 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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