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Finance Bulletin, March 2008

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Economic Update

2008 got off to a rough start.  News from the labor market was disappointing.  Homebuilding continued to slow and existing home prices weakened.

  • Nonfarm payroll employment fell by 20,300 in January, and the December 2007 gain was revised down 4,100 to 11,400.  The good news is that the January loss stemmed principally from the writers' strike and those losses should be recouped in upcoming months.  Motion picture and video production lost 22,100 jobs in January.
  • The biggest gains in January were in trade, transportation, and utilities (10,900) and professional and business services (10,000).  Government added 3,800 jobs and natural resources and mining and manufacturing made small gains.   
  • In addition to motion pictures, five other major industry sectors lost jobs in January.  Construction dropped 12,900 jobs; other services, 3,600; leisure and hospitality 1,500; education and health services, 1,300; and financial activities, 1,200.
  • The January labor market report incorporated revised, or "rebenchmarked," employment estimates which painted a worse picture of 2007.  As suspected, the loss of jobs in housing-related industries was larger than initially reported.  Total nonfarm job growth in 2007 was reduced from the originally reported 183,300 to 105,800.   Thus, 2008 started with less momentum than previously thought.  Nonfarm payroll employment in January was only 14,900 jobs, or 0.1 percent, above the year-ago level.
  • The annual revisions also erased the initially-reported sharp jump in the state's unemployment rate to 6.1 percent in December.  After the revisions, the state's unemployment rate was 5.9 percent in both December and January and 5.7 percent in November. The annual revisions also essentially eliminated the dramatic month-to-month volatility in the household employment estimates originally reported throughout 2007.
  • The home-building see-saw continued into 2008 with a sharp drop in permitting in January following a strong up-tick in December.  Revised building standards that went into effect as of January likely caused a surge in December by builders in order to head off more stringent building requirements.  Residential permitting in January fell to 66,400 units on a seasonally adjusted annual rate basis—off 52 percent from a year earlier.  Abstracting from the month-to-month volatility, home building continued to slow.  The average pace of new home construction permitting for the three months ending with January was down 43 percent from the same months a year earlier.
  • Similarly, nonresidential construction had its ups and downs recently, but continued to grow.   After jumping 18 percent in December, the value of nonresidential construction permitting in January dropped almost 28 percent on a seasonally adjusted annual rate basis.  During the three months ending with January as a whole, permitting was up 5.9 percent from the same months a year earlier.
  • Sales of existing single-family detached homes improved for the third month in a row in January.  Sales reached a seasonally adjusted annual rate of 313,580 units according to the California Association of Realtors.  This rate, though, is down nearly 30 percent from January 2007.
  • Better news on sales, however, didn't keep home prices from taking another dive in January.  The median price of existing single-family homes sold plunged nearly 10 percent, to $430,270—the fifth consecutive month-over decline.  This price was also down almost 22 percent from a year earlier.  A change in the sales mix away from upper-end homes—most likely the result of tightening credit conditions—played a role in the decline.

      

Monthly Cash Report

Preliminary General Fund agency cash for February was $88 million below the 2008-09 Governor's Budget forecast of $7.537 billion.  Year-to-date revenues are $275 million below the $61.495 billion that was expected.
Personal income tax revenues to the General Fund were $236 million above the month’s forecast of $1.216 billion.

  • Withholding receipts were $319 million above the estimate of $2.688 billion and other receipts met the projected level of $382 million.  Refunds came in $79 million higher than the anticipated $1.832 million; February is the first month of several significant months for 2007 tax year refunds.  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 February was $4 million above the estimate of $22 million.  Year-to-date General Fund income tax revenues are $205 million above estimate.
  • Sales and use tax receipts were $169 million below the month’s forecast of $2.484 billion.  February cash includes the remaining portion of the final payment for fourth quarter 2007 sales, which was due January 31.  In addition, the first prepayment for first quarter 2008 was due in February.  Year-to-date, the sales tax cash is $419 million below expectations.
    Corporation tax revenues were $35 million below the month’s estimate of $196 million.  Prepayments were $38 million below the forecast of $159 million and other payments were $9 million over the $112 million that was expected.  Refunds were $6 million above the projected level of $75 million.  Year-to-date revenues are $23 million above estimate.
  • Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes were $143 million below the month's forecast of $209 million.  Receipts from the insurance tax alone were $144 million below the $178 million expected for the month.  It is expected that this loss will be offset by higher insurance tax receipts in March and April.  Pooled money interest income was $12 million below the estimate of $41 million and "other" revenues, which included the sale of $3.314 billion of Economic Recovery Bonds, were $35 million higher than the estimate of $3.391 billion.

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