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Finance Bulletin, August 2008

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Economic Update

California labor markets continued to slide in June.  The state lost nonfarm jobs and the unemployment rate inched up.  Despite improving home sales, construction activity remained depressed.

  • Nonfarm payroll employment fell by 12,800 in California in June, following a revised loss of 8,900 in May (originally reported as a loss of 10,900). 
  • Five of the state's 11 major industry sectors gained jobs in June, with educational and health services leading the way.  Educational and health services added 4,100 jobs; leisure and hospitality, 1,700; other services, 1,400; financial activities, 1,100; and natural resources and mining, 100.  On the downside, government lost 6,500 jobs; manufacturing, 4,400; professional and business services, 4,400; trade, transportation, and utilities, 3,000; information, 2,200; and construction, 700.
  • From June 2007 to June 2008, the state lost 39,900 nonfarm jobs, a 0.3-percent drop, with the state’s beleaguered housing industry continuing to be the focus of most of the losses.  Employment rose 58,800 in educational and health services; 35,100 in government; 14,100 in professional and business services; 9,600 in leisure and hospitality; 5,900 in other services; and 1,100 in natural resources and mining.    Over the year, employment fell by 86,000 in construction; 32,000 in financial activities; 26,600 in manufacturing; 10,100 in information; and 9,800 in trade, transportation, and utilities.
  • Following a large jump to 6.8 percent in May, the state's unemployment rate increased to 6.9 percent in June, the highest rate since October 2003.  California's unemployment rate was 5.3 percent a year ago.  The national unemployment rate was unchanged at 5.5 percent in June.  The gap between the state's unemployment rate and the national rate has widened considerably in the last year—from 0.7 percentage point in June 2007 to 1.4 percent last month. 
  • Nonresidential construction followed a see-saw pattern during the first half of 2008.  A sharp drop in January was followed by a rebound in the following two months, followed by another slowdown in April and May, and then a slight recovery in June.  Overall, nonresidential permitting during the first half of 2008 was down about 4 percent from the same months of 2007.   A significant drop in office construction accounted for the largest share of the overall slowdown.
  • Home building slowed in June with permits issued for 67,900 units at a seasonally adjusted annual rate.  This pace was down nearly 34 percent from June 2007, and permitting during the first half of 2008 overall was down nearly 43 percent from the same months of 2007.
  • Driven to some degree by distressed sales prices, California home sales in June stayed above the 400,000-unit level for the second consecutive month.  Home sales reached 420,600 units on a seasonally adjusted annual rate basis, up 17.5 percent from a year earlier.  This was the third consecutive month with a year-over-year gain.   The last occurrence of three consecutive year-over-year gains was in September 2005.
  • Behind the positive news on sales was further deterioration in home prices.  The median price of existing single-family homes sold in June fell to $368,300, down nearly 38 percent from a year earlier.  This was also the tenth consecutive month-over-month drop in California’s median home price.
  • The improved sales pace was also reflected in other housing market barometers.  The inventory of unsold existing homes, as well as the median number of days needed to sell an existing house, both fell in June.


Monthly Cash Report

Preliminary General Fund agency cash for July was $18 million above the 2008-09 May Revision forecast of $5.601 billion.  Revenues are $338 million above May Revision estimates for the months of May through July.

  • Personal income tax revenues to the General Fund were $261 million above the month’s forecast of $2.641 billion.  Withholding receipts were $260 million higher than the projected level of $2.524 billion.  July’s withholding strength appears to be related more to variances from estimates of monthly cash flow during the third quarter than economic strength.  August withholding may provide a clearer picture of the actual trend.  Other receipts were $48 million below the anticipated $433 million – July is not a significant month for income tax estimated payments or final payments.  Refunds came in $54 million under the estimate of $269 million.  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 July was $5 million above the month’s estimate of $47 million.
  • Sales and use tax receipts were $81 million below the month’s forecast of $2.041 billion.  July represents the final payment for second quarter taxable sales, which was due on July 31.  A more complete picture of second quarter sales will be available later in the month, when all of the second quarter receipts have been processed.
  • Corporation tax revenues were $52 million below the month’s estimate of $254 million.  Prepayments were $78 million lower than the forecast of $290 million and other payments were $20 million below the $106 million that was expected.  Refunds were $46 million below the projected level of $142 million.
  • Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes came in $17 million above the $55 million that was expected.  Pooled money interest income was $6 million above the estimate of $24 million, and "other" revenues were $133 million below the month’s estimate of $586 million, thus offsetting the cash flow gain in June as expected.

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