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Finance Bulletin: July 2007

Economic Update

As California approaches midyear, the real estate downturn shows little signs of abating, and its effects on California job markets are becoming more evident.

• The state added 10,800 nonfarm payroll jobs in May, which was less than its share of the 157,000 gain in the nation.  In addition, the gain in April, which was initially estimated at 7,400, was revised downward to 4,800.  During the first five months of 2007, the state added 9,160 jobs per month on average.  The average during the same months of 2006 was 15,440.
• In May, government added 5,300 jobs; information, 4,600; trade, transportation, and utilities, 3,200; other services, 2,700; leisure and hospitality, 1,800; educational and health services, 1,200; and professional and business services, 100.  Conversely, manufacturing lost 3,400 jobs; construction, 2,400; financial activities, 1,800; and natural resources and mining, 500.
• Over the 12 months from May 2006 to May 2007, California nonfarm payroll employment grew by 228,600, or 1.5 percent.
• Over the year, employment rose by 56,100 in professional and business services.  Educational and health services and the government sector each added 47,200.  There was a 39,100 gain in leisure and hospitality; 38,200 in trade, transportation, and utilities; 8,600 in other services; 4,300 in information; and 300 in natural resources and mining.  Employment fell by 4,800 in construction; 4,600 in manufacturing; and 3,000 in financial activities.
• The state's unemployment rate increased by 0.1 percentage point to 5.2 percent in May.  This was the second consecutive month-over-month increase after nine months of exceptional stability.  The state's unemployment rate registered exactly 4.8 percent in 7 out of the 9 months leading up to April 2007.  In May 2006, California's unemployment rate was 4.9 percent.
• After picking up slightly in the first quarter of 2007, new home construction slowed in April and May.  Permit issuances reached only 123,000 and 122,000 units respectively in April and May on a seasonally adjusted annual rate basis.  These were both off nearly 30 percent from the pace set 12 months earlier.  The May pace was the slowest since May 2001.  The single family sector continued to be the greatest contributor to the homebuilding slowdown. 
• The value of nonresidential construction permits issued during the first five months of 2007 was up 7 percent from the same period of 2006.  This improvement was led by strong gains in office and store construction and by additions and alterations. 
• Real estate markets continued to weaken in May.  The inventory of existing homes available for sale rose, but not as dramatically as the jump in April.  Sales of existing single-family homes slowed to 366,370 units on a seasonally adjusted annual rate basis—25 percent below the year-ago pace.  

• California home prices lost a little ground in May, but were still up from a year earlier.  The state's median existing single-family home price was $591,180 in May, up 4.8 percent from May 2006.

Monthly Cash Report

Preliminary General Fund agency cash for June was $306 million below the 2007-08 May Revision forecast of $10.795 billion.  Year-to-date revenues are $829 million below the $97.298 billion that was expected.

• Personal income tax revenues to the General Fund were $151 million above the month’s forecast of $5.365 billion.  Withholding receipts were $35 million above the month's estimate of $2.556 billion and the second quarterly estimated payment for the 2007 tax year came in $161 million above the projected level of $2.686 billion.  Other receipts, which include audit collections and withholding on real estate, were $28 million below the month’s estimate of $389 million.  Refunds were $14 million above the anticipated $170 million.  Year-to-date General Fund tax revenues are $495 million below estimate.  Proposition 63 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 June was $3 million above the estimate of $96 million.
• Sales and use tax receipts were $315 million below the month’s forecast of $2.98 billion, which represents a year-over-year decline of 6.9 percent.  Sales tax receipts had been tracking forecast for the first 11 months of the fiscal year.  At this time it is not known if the swing in June is a precursor of underlying weakness in taxable sales.  June represents the second prepayment for second quarter sales.  A more complete picture of second quarter sales will be available in mid-August, when all of the second quarter receipts have been processed.  Year-to-date, the sales tax cash is $283 million less than anticipated. 
• Corporation tax revenues were $5 million below the month’s estimate of $1.735 billion.  Prepayments were $32 million lower than the forecast of $1.654 billion and other payments were $3 million below the $180 million that was expected.  Refunds were $30 million below the projected level of $99 million.  Year-to-date revenues are $43 million below estimate.
• Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes came in $119 million below the $480 million that was expected.  The lower insurance tax receipts in June are due to timing of estimated payments; May's receipts were $122 million above forecast.  The remaining revenues—pooled money interest income and “other” revenues—were $18 million below the month’s estimate of $235 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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