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Finance Bulletin, December 2008

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Economic Update

The latest economic indicators show that the state's downturn is no longer concentrated in residential construction and the housing-related part of the financial sector. Only four industry sectors gained jobs in October. Construction activity continued to weaken. The only encouraging sign was a resurgence of existing home sales.

  • California lost 26,400 nonfarm jobs in October, following a revised loss of 10,900 jobs in September. Job losses have accelerated as the year has progressed. In the five months ending with October, the state lost an average of 15,700 jobs each month. During the first five months of the year, the average monthly loss was 5,200. 
  • Modest gains were made in only four of the state’s major industry sectors in October. Educational and health services added 2,400 jobs; government, 1,200; leisure and hospitality, 900; and natural resources and mining, 100. Seven sectors lost jobs. Trade, transportation, and utilities lost 11,500 jobs; professional and business services, 6,500; manufacturing, 5,700; construction, 2,400; financial activities, 2,100; information, 1,700; and other services, 1,100.
  • California nonfarm payroll employment fell by 101,300 from October 2007 to October 2008, a 0.7–­percent loss.  Employment rose 52,100 in educational and health services; 15,800 in government; 8,000 in leisure and hospitality; and 1,400 in natural resources and mining. Over the year, employment fell by 65,900 in construction; 38,700 in trade, transportation, and utilities; 31,800 in financial activities; 31,500 in manufacturing; 5,800 in professional and business services; 3,600 in other services; and 1,300 in information.
  • California's unemployment rate rose 0.5 percentage point to 8.2 percent in October. This was the highest rate since September 1994 and was also 2.5 percentage points higher than the 5.7–percent rate in October 2007—the largest year-over-year jump since December 1982.
  • California was clearly following the national trend. The U.S. unemployment rate jumped 0.4 percentage point to 6.5 percent in October, which was the nation's highest rate since March 1994. The U.S. unemployment rate rose by 1.7 percentage point from a year earlier—the nation's largest year-over-year increase since December 2001.
  • The pace of new home construction slowed again in October—the fifth consecutive month-over decline. Residential permits were issued at a seasonally adjusted annual rate of 51,400 units, down 48 percent from a year earlier—again, the lowest level of activity according to data that reaches back to 1973.  Single-family permits were down 44 percent, while multi-family permitting was down 53 percent. New home permitting during the first 10 months of 2008 was down 44 percent from the same months of 2007.
  • Nonresidential construction also slowed in October—its third consecutive monthly decline. With permits issued at an annual pace of $14.7 billion, October was the weakest month since February 2004. Nonresidential construction permitting fell 36 percent in October from a year earlier. For the first 10 months of 2008 as a whole, nonresidential permitting was down 10.5 percent from the same months of 2007. Slowing office and retail construction accounted for the lion’s share of the slowdown.
  • Existing home sales rose again in October to more than twice the rate of sales posted a year earlier. Sales of existing, single-family detached homes totaled 552,750 units at a seasonally adjusted annualized rate.  Improved sales led to the third consecutive drop in the inventory of homes available for sale, according to the California Association of Realtors. Weakening home prices undoubtedly contributed to the improvement in sales. The median price of existing, single-family homes sold in October was $311,000, down 40 percent from a year earlier.  

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Monthly Cash Report

Preliminary General Fund agency cash for November was $715 million below the 2008-09 Special Session forecast of $5.317 billion; year-to-date revenues are $556 million below the $32.748 billion that was estimated. These revenue reductions are reflected in the Governor’s Budget revenue forecast released on December 11, 2008. Relative to the 2008 Budget Act forecast, November’s agency cash was $1.007 billion below the month’s forecast of $5.609 billion and $2.291 billion below the expected year-to-date revenues of $34.483. The following discussion on revenues by tax is based on the Special Session forecast.

  • Personal income tax revenues to the General Fund were $414 million below the month’s forecast of $2.516 billion. The shortfall was attributed to withholding, which came in $462 million below the estimate of $2.856 billion – a 16–percent decline from the year-ago level. Although there were two fewer cashiering days this November than in 2007, this does not fully explain the sharp drop-off. Prior to this month, cumulative withholding for calendar year 2008 had been up by about 2 percent. Other receipts were $13 million above the forecast of $329 million and refunds were $28 million lower than the month’s estimate of $621 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 November was $7 million below the month’s estimate of $45 million. Year-to-date General Fund income tax revenues are $385 million below estimate.

  • Sales and use tax receipts were $242 million below the month’s forecast of $2.320 billion. November cash includes a portion of the final payments for third quarter sales, as well as the first prepayment for fourth quarter sales. Year to date, the sales tax cash is $47 million above forecast.
  • Corporation tax revenues were $29 million below the month’s estimate of -$146 million. Prepayments were $24 million above than the forecast of $114 million and other payments were $1 million above the $118 million that was expected. Refunds for the month were $54 million above the projected level of $378 million. November refunds are associated with the 2007 tax year extension filings that were due in mid-October. Year-to-date revenues are $123 million below estimate.
  • Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes were $93 million below the month's estimate of $408 million. Receipts from the insurance tax alone were $97 million below the projected $369 million; it is expected that a large part of this short fall will be offset by higher insurance tax receipts in December. The remaining revenues—pooled money interest income and “other” revenues—were $63 million above the month's estimate of $219 million.

generalFundAgencyCash2008-09Forecast

 

2008-09 Comparison Chart

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