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Finance Bulletin, November 2008

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Economic Update

September brought unwelcome news for the California economy. Despite an uptick in sales, new home construction plunged to its lowest level on record.  Existing home prices took a substantial hit.  Nonresidential construction also softened, to its weakest pace since early 2005.  Industry employment declined for the seventh consecutive month, and the unemployment rate remained elevated.

  • California dropped 11,600 nonfarm jobs in September, following a revised loss of 12,700 jobs in August.  Job losses have accelerated as the year progressed.  In the first five months of the year, the average monthly loss was 5,200 jobs, while in the last four months, it was 13,200 jobs. 
  • Five of the state's eleven major industry sectors gained jobs in September.  Information added 2,300 jobs; educational and health services, 2,000; manufacturing, 1,400; leisure and hospitality, 1,400; and natural resources and mining, 100.
  • Six sectors lost jobs:  Trade, transportation, and utilities lost 6,300 jobs; construction, 4,000; government, 3,400; financial activities, 3,300; professional and business services, 1,000; and other services, 800.  Retail trade—the biggest component of the trade, transportation, and utilities major industry sector—lost 3,500 jobs in September, its eighth consecutive monthly loss.
  • Housing-related industries continued to place a drag on California labor markets.   Nonfarm payroll employment fell by 77,200 jobs from September 2007 to September 2008.  Over the year, employment fell by 76,700 in construction; 35,800 in trade, transportation, and utilities; 31,400 in financial activities; 25,200 in manufacturing; and 6,800 in information. 
  • Six sectors gained jobs:  Employment rose 48,100 in educational and health services; 26,200 in government; 11,600 in professional and business services; 11,100 in leisure and hospitality; 1,100 in natural resources and mining; and 600 in other services.
  • California's unemployment rate held steady at 7.7 percent in September, but this was up from 5.6 percent a year earlier.  The national unemployment rate was 6.1 percent in September, also unchanged from August.
  • Home building slowed for the fourth consecutive month in September.  With residential permits issued at a seasonally adjusted annual rate of 51,700 units, September was the slowest month for construction permitting according to data that reaches back to 1973.  New home permitting during the first nine months of 2008 was down 43 percent from the same months of 2007.
  • Nonresidential construction slowed significantly for the second consecutive month in September.  The pace of permit issuances during August and September was 25 percent below the same months of 2007.  September was the weakest month of permitting since March 2005.  The slowdown was led by major reductions in industrial and office construction.  For the first nine months of 2008, nonresidential permitting was down 8.1 percent from the same months of 2007.
  • Sales of existing homes continued to improve, but since it was boosted by sales of distressed houses, the median price took another significant tumble.  Sales of existing, single-family detached homes totaled 502,190 units at a seasonally adjusted annualized rate. The inventory of homes available for sale improved slightly in September according to the California Association of Realtors.  The median price of existing, single-family homes sold in September was $316,480, down 9.6 percent from August and down 41 percent from a year earlier.  Part of this decline is most likely due to a shift in the mix of sales from expensive to more moderately priced homes.

      

Monthly Cash Report

Preliminary General Fund agency cash for October was $2 million above the 2008-09 Special Session forecast of $5.887 billion; year-to-date revenues are $20 million below the $27.431 billion that was estimated.  Relative to the 2008 Budget Act forecast, October’s agency cash was $405 million below the month’s forecast of $6.294 billion and $1.464 billion below the expected year-to-date revenues of $28.874 billion.  The following discussion on revenues by tax is based on the Special Session forecast.

  • Personal income tax revenues to the General Fund were $30 million above the month’s forecast of $3.038 billion.  Withholding was $30 million above the estimate of $2.759 billion and other receipts were $13 million above the forecast of $942 million.  Refunds were $12 million higher than the month’s estimate of $609 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 October was $1 million above the month’s estimate of $54 million. Year-to-date General Fund income tax revenues are $30 million above estimate.

  • Sales and use tax receipts were $109 million above the month’s forecast of $2.156 billion.  The final payment for third-quarter taxable sales was due at the end of October and a portion of this payment is received in November.  Year-to-date, the sales tax cash is $109 million above forecast.

  • Corporation tax revenues were $94 million below the month’s estimate of $364 million.  Prepayments were $44 million lower than the forecast of $308 million and other payments were $51 million above the $204 million that was expected.  Refunds for the month were $101 million above the projected level of $148 million due to audit-related refunds being processed earlier than anticipated.  Year-to-date revenues are $94 million below estimate.
  • Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes were $3 million above the month's estimate of $60 million.  The remaining revenues—pooled money interest income and “other” revenues—were $46 million below the month's estimate of $269 million.

 

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