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Finance Bulletin, April 2008

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Economic Update

February 2008 brought better labor market news for California, even though the housing slump continued to cost the state jobs.  Despite some tentative stability for home sales, residential building and home prices were again disappointing.

  • California added 25,800 nonfarm jobs in February, even though the nation as a whole lost jobs.  Strong gains in the information sector, which includes motion picture and video production industries, suggest that the state began recouping the employment loses stemming from the writer's strike.  After losing 21,000 jobs in February, motion picture and video production added 9,400 jobs in February.  Nationally, payroll employment dropped 63,000, the second consecutive month-over-month decline.
  • The strongest gains in February were in the information and education and health sectors.  Information added 11,400 jobs; educational and health services, 10,100; trade, transportation, and utilities, 7,400; leisure and hospitality, 4,600; other services, 1,100; government, 500; natural resources and mining, 200; and professional and business services, 100. 
  • Job losses were again centered around the dormant real estate markets.  Financial activities lost 3,500 jobs; construction, 3,100; and manufacturing, 3,000.
  • Despite the good gain in February, nonfarm payroll employment was up only 8,100, or 0.1 percent from a year earlier.  Employment rose 49,700 in government; 45,300 in educational and health services; 27,400 in professional and business services; 20,800 in leisure and hospitality; 14,800 in trade, transportation, and utilities; 5,300 in other services.  Employment was unchanged in natural resources and mining.   
  • Annual job losses were led by sectors closely connected to home construction and real estate.  Over the year, employment fell by 78,500 in construction; 41,200 in financial activities; 26,000 in manufacturing; and 9,500 in information.
  • The state's unemployment rate fell by 0.2 percentage point to 5.7 percent in February, but this was not necessarily good news as both employment and unemployment dropped.  As a result, the overall labor force declined, with the percentage decline in the number of unemployed persons exceeding the percentage decline in the labor force.  This could be a sign of an increase in "discouraged workers" which normally accompanies an economic slowdown.
  • In home building, alternating monthly ups and downs continued in February.  The pace of new home construction permitting recovered somewhat from a very weak January.  However, February's pace - 89,000 units on a seasonally adjusted, annual rate basis - was still meager, off nearly 32 percent from a year earlier.  Home construction permitting during the first two months of 2008 was down 42 percent from the same months of 2007 and down 61 percent from the same period of 2006.  Single-family home building was the principle cause of this downturn.
  • Nonresidential construction continued a see-saw pattern into 2008.  A sharp jump in December was followed by a slowdown in January and then a slight improvement in February.  However, in a definite contrast with 2007, nonresidential permitting during the first two months of 2008 was down 10 percent from the same months of 2007.  
  • Sales of existing single-family detached homes improved for the fourth month in a row in February.  Sales reached a seasonally adjusted annual rate of 343,220 units.  Despite this slight improvement, home inventories remain elevated according to the California Association of Realtors.  Existing home sales during the first two months of 2008 were the slowest recorded for the January-February period since 1995.
  • As was the case in the preceding three months, improved home sales did not halt the slide in home prices.  The median price of existing homes sold dropped by nearly 5 percent in February to $409,240.  This was the sixth consecutive monthly decline.  Over the last 12 months, the median price has fallen by 26 percent.


Monthly Cash Report

Preliminary General Fund agency cash for March was $912 million below the 2008-09 Governor's Budget forecast of $6.279 billion. Year-to-date revenues are $1.184 billion below the $67.774 billion that was expected.

  • Personal income tax revenues to the General Fund were $45 million below the month’s forecast of $1.723 billion.  Withholding receipts were $69 million below the estimate of $3.081 billion.  Other receipts were $151 million under the projected level of $789 million and refunds were $174 million below the anticipated $2.116 billion.  April personal income tax receipts will be critical as final returns or extension requests for the 2007 tax year are filed.  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 April was $1 million below the estimate of $31 million.  Year-to-date General Fund income tax revenues are $163 million above estimate.
  • Sales and use tax receipts were $1 million below the month’s forecast of $1.994 billion.  March cash includes the second prepayment for first quarter sales and use tax liabilities.  Year-to-date, the sales tax cash is $420 million below expectations.
  • Corporation tax revenues were $869 million below the month’s estimate of $2.146 billion.  Prepayments were $43 million below the forecast of $540 million and other payments, which include the final payments for 2007 calendar year corporations, were $808 million lower than the $1.783 million that was expected.  As noted in the February 2008 Finance Bulletin, December’s prepayments were notably weak.  Because these payments were not known in time for the Governor’s Budget forecast, Finance’s cash estimates assumed that December’s weakness would be recovered when calendar year corporations made their final payments in March.  Specifically, projected March cash included $490 million in payments that were expected in December.  March’s cash now indicates that the weakness in December was not due to companies conserving cash or tax management reasons but rather to weakness in underlying profits.  Refunds were $18 million above the projected level of $177 million.  Year-to-date revenues are $846 million below estimate.

  • Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes were $31 million above the month's forecast of $282 million.  Receipts from the insurance tax alone were $32 million above the $249 million expected for the month; thus partially offsetting the cash flow shortfall in March as expected.  The remaining revenues—pooled money interest income and "other" revenues—were $28 million lower than the estimate of $134 million; interest income earned in March was not recorded as having been transferred to the General Fund until early April.

For more information, please contact the California Department of Finance, Room1145, State Capitol, Sacramento, CA or call (916) 323-0648.