Department of Finance
915 L Street
Sacramento, CA 95814

Search

My CA

Finance Bulletin: June 2007

Economic Update

As in the nation, the dramatic slowdown in California's residential real estate markets has tempered overall economic growth. The effects, though, have been largely confined to sectors most dependent on real estate, namely construction, finance, and retail trade.

• The pace of overall nonfarm job growth slowed from a 2.1-percent year-over-year pace in the first quarter of 2006 to 1.6 percent during the first quarter of 2007. A slowdown in construction employment accounted for most of this slowing. The retail trade and finance sectors experienced similar slowdowns.
• The pattern was evident in the April employment report. The state gained only 7,400 jobs. Construction employment dropped 3,000; retail trade 1,100: and financial activities 700. The other job-losing sectors included the volatile information sector (6,800); manufacturing (700); and the small natural resources and mining sector (200). Strong job gains were made in government (5,800), trade, transportation, and utilities (4,200 despite a drop in retail trade), and business and professional services (3,400). Thus far, cooler real estate markets haven't chilled much else.
• The initial estimate of California's unemployment rate in April was surprising. After nearly a year of exceptional stability, the rate climbed 0.3 percentage point from 4.8 percent in March to 5.1 percent. This was the largest one-month increase since November 2001. The number of unemployed Californians jumped by 58,000 persons—the second largest one-month increase in the official data series going back to January 1976. And, the number of employed persons fell by 50,000—the largest drop since March 1991. It is unlikely that labor markets weakened as much as this jump would indicate. The revised estimate that will be released next March will most likely be lower.
• New home construction picked up slightly in the first quarter of 2007, even though it was still subdued by historical standards. Permit issuances averaged 137,000 units on a seasonally adjusted annual rate basis—an improvement from the 128,000-unit pace set in the final quarter of 2007. The pace set over these six months, however, was the slowest since the middle of 1998. The single family sector was the most significant source of the recent slowdown in home building.
• California's slumping construction industries have been partially buoyed by healthy business construction. While the value of residential construction permitting dropped over 36 percent (on a seasonally adjusted annual rate basis) between the residential construction peak in mid-2005 and the first quarter of 2007, the value of nonresidential permitting rose nearly 14 percent, making up for about 15 percent of the drop in residential construction.
• The value of nonresidential construction permits issued during the first three months of 2007 was up nearly 8 percent from the same period of 2006. This improvement was led by strong gains in office and store construction and by additions and alterations.
• Tightened credit standards and fallout from the subprime loan collapse took a toll on existing home sales in April. The inventory of existing homes available for sale reached its highest level in years. Sales of existing single-family homes slowed sharply in March and April. The pace slid in March to 427,110 units on a seasonally adjusted annual rate basis—21 percent below the year-ago pace. In April, home sales dropped even more dramatically to 373,280 units—nearly 28 percent below the pace set a year earlier.
  
• The state's median existing single-family home price rose to $597,640 in April, up over 6 percent from a year earlier. However, this was most likely the result of a shift in the composition of home sales. Real estate troubles—including tightening credit standards,rising foreclosures, and burgeoning new home inventories— weakened sales in lower-priced, predominantly inland, markets, while higher-priced, mainly coastal markets showed modest improvement.

Monthly Cash Report

Preliminary General Fund agency cash for May was $397 million below the 2007-08 May Revision forecast of $5.915 billion. Including adjustments for actual March and April receipts that were not known when the May Revision forecast was being prepared, year-to-date revenues are $538 million below the $86.503 billion that was expected. Although May is a significant revenue month, June is more important, because estimated payments for personal income tax filers and calendar-year corporations are due mid-month.  Nearly $10.8 billion is forecast for June.

• Personal income tax revenues to the General Fund were $407 million below the month’s forecast of $2.711 billion. Withholding receipts were $20  million below the estimate of $2.67 billion and other receipts were $218 million under the projected level of $899  million. Refunds issued in May were $177 million more than the anticipated $809 million. Year-to-date General Fund income tax revenues are $645 million below forecast, of which $238 million is due to the variance between estimated receipts for April at the time the forecast was being prepared and actual receipts. 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 May was $8 million below the estimate of $49 million.
• Sales and use tax receipts were $81 million below the month’s forecast of $2.681 billion. May represents the balance of the final payments for first quarter taxable sales as well as the first prepayment for second quarter sales. Adjustments to March and April receipts added $97 million, bringing year-to-date totals to $16 million above the forecast.
• Corporation tax revenues were $249 million, $38 million below the month’s estimate of $287 million. Prepayments were $47 million below the forecast of $259 million. Other payments were $33 million higher than the forecast of $109 million. Refunds were $24 million above the projected level of $81  million. May is not a particularly large payment month for this tax. Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes were $118 million above the month's forecast of $48 million. Receipts from insurance tax alone were $122  million above the $12 million expected for the month. The gain is attributed to an acceleration of receipts into May that were due on June 1. It is expected this gain will be offset by lower insurance receipts in June. The remaining revenues—pooled money interest income and "other" revenues—were $11 million above the month's forecast of $188 million.
• Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes were $118 million above the month's forecast of $48 million. Receipts from insurance tax alone were $122 million above the $12 million expected for the month. The gain is attributed to an acceleration of receipts into May that were due on June 1. It is expected this gain will be offset by lower insurance receipts in June. The remaining revenues— pooled money interest income and "other" revenues — were $11 million above the month's forecast of $188 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