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Finance Bulletin, July 2008

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Economic Update

California continued to shed jobs in May even though real estate and home construction showed some signs of life.  Home sales improved, inventories shrank, and home building improved slightly.

  • Nonfarm payroll employment fell by 10,900 in California in May.  Also, the decline in employment in April, initially estimated at 800, was revised to a 9,100 decline. 
  • Four of the state's 11 major industry sectors gained jobs in May.  Educational and health services added 4,000 jobs; information, 3,200; other services, 1,600; and natural resources and mining, 200.  Government employment held steady in May.
  • Six sectors lost jobs, led by construction which dropped 9,600 jobs.  Manufacturing lost 3,300 jobs; professional and business services, 3,100; leisure and hospitality, 2,000; financial activities, 1,200; and trade, transportation, and utilities, 700.
  • From May 2007 to May 2008, the state lost 18,600 nonfarm jobs—a 0.1 percent drop.  Most of the losses were associated with slumping housing activity.
  • Six of the 11 major industry sectors gained jobs over the 12-month period.  Employment rose 56,100 in educational and health services; 43,200 in government; 21,700 in professional and business services; 9,500 in leisure and hospitality; 7,300 in other services; and 900 in natural resources and mining.  Of the year's growth in government, more than half—28,800—was in local government.
  • Over the year, employment fell by 88,400 in construction; 34,900 in financial activities; 22,000 in manufacturing; 6,600 in trade, transportation, and utilities; and 5,400 in information.
  • The state's unemployment rate jumped 0.6 percentage point to 6.8 percent in May—the biggest jump in the official series, which goes back to January 1976. However, this jump may have been an anomaly.  The volatility of this series has become so great that the unemployment rate estimates impart very little information on the state of the economy on a month-to-month basis.  This volatility began in 2005 when the U.S. Bureau of Labor Statistics imposed a new requirement that the labor market statistics of the states add up to the corresponding figures for the nation.  For example, the reported number of unemployed people increased more than 10 percent in May—the biggest increase in over 36 years.  There is little reason to believe that California’s unemployment situation deteriorated that dramatically in just one month.
  • Home building improved in May, but remained lackluster as permits were issued for 84,600 units at a seasonally adjusted annual rate.  It was the second consecutive monthly gain.  This pace, though, was down nearly 30 percent from May 2007, and permitting during the first five months of 2008 overall was down over 44 percent from the same months of 2007.
  • Sales of foreclosed homes boosted existing home sales in California again in May, to 423,700 units on a seasonally adjusted annual rate basis.  On a month-to-month basis, home sales improved in four of the first five months of 2008.  May’s sales pace was also up over 18 percent from a year earlier—the second consecutive month with a year-over-year improvement.  The average pace of sales during the first five months of 2008 overall, though, was down 14.5 percent from the same months of 2007, and down over 30 percent from the same months of 2006.
  • Despite the pickup in sales, single family home prices continued to fall in May.  The median price of existing single-family homes sold in May fell to $384,840, a 35 percent drop from a year earlier.  California’s median home price has fallen each month since August 2007.
  • The inventory of unsold existing homes however, fell for the fourth consecutive month in May.  The unsold inventory index—the number of months needed to deplete the supply of homes on the market at the current sales rate—dropped to 8.4 months, down from 16.8 months at the beginning of the year

      

Monthly Cash Report

Preliminary General Fund agency cash for June was $287 million above the 2008-09 May Revision forecast of $10.477 billion.  Year-to-date revenues are $320 million above the $100.464 billion that was expected.  Revisions to prior months are included in the year-to-date figures.

  • Personal income tax revenues to the General Fund were $13 million above the month’s forecast of $5.449 billion.  Withholding receipts were $121 million above the month's estimate of $2.504 billion and the second quarterly estimated payment for the 2008 tax year came in $47 million below the projected level of $2.886 billion.  Other receipts met the month’s estimate of $361 million and refunds were $61 million above the anticipated $204 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 June equaled the month’s estimate of $98 million.  Year-to-date General Fund income tax revenues are $294 million above estimate.

  • Sales and use tax receipts were $43 million above the month’s forecast of $2.794 billion.  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.  Some of the strength in June was due to tax receipts received in June that had been expected in May.  Year-to-date, the sales tax cash is $272 million below estimate.

  • Corporation tax revenues were $215 million above the month’s estimate of $1.626 billion.  Prepayments were $129 million above than the forecast of $1.593 billion and other payments were $34 million above the $152 million that was expected.  Refunds were $52 million below the projected level of $119 million.  Year-to-date revenues are $114 million above estimate.

  • Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes came in $120 million below the $348 million that was expected.  Receipts from the insurance tax alone were $116 million below the $310 million expected for the month, thus partially offsetting the cash flow gain in May as expected.  Pooled money interest income was $8 million above the estimate of $52 million and “other” revenues were $128 million above the forecast of $208 million due to cash flow.


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