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Finance Bulletin, October 2008

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Economic Update

The ongoing housing and financial crises continued to roil the California economy in August.  The state lost payroll  jobs for the sixth consecutive month,  and the unemployment rate rose again.  Home building slowed, but home sales stabilized.

  • California lost 7,700 nonfarm payroll jobs in August—about half of the 15,000 loss in July.  The state lost jobs in seven out of the first eight months of 2008, and in 10 out of the last 12.  Since nonfarm employment peaked in July 2007, the state has lost 83,700 jobs, or 6,440 per month on average.
  • Only three of the state's major industry sectors gained jobs in August.  Information added 9,400 jobs; educational and health services, 2,200; and leisure and hospitality, 1,900. 
  • Seven sectors lost jobs.  The big losses were in trade, transportation, and utilities—6,400—and in government, where 6,000 jobs were dropped.  Retail trade, the biggest component of trade, transportation, and utilities, lost 7,800.  Elsewhere, financial activities lost 2,800 jobs; manufacturing, 2,400; construction, 2,000; professional and business services, 1,500; and other services, 100.
  • Still burdened by ongoing housing troubles, California employment also dropped on a year-over-year basis.  Nonfarm payroll employment fell by 72,700 jobs (0.5 percent) from August 2007 to August 2008.  Six industry sectors gained jobs, lead by a 50,200 gain in educational and health services.  Employment also rose 26,300 in government; 14,100 in leisure and hospitality; 8,400 in professional and business services; 900 in natural resources and mining; and 500 in other services.  Over the year, employment fell by 79,200 in Construction; 33,300 in Financial Activities; 28,800 in Manufacturing; 24,600 in Trade, Transportation, and Utilities; and 7,200 in Information.   
  • California's unemployment rate rose to 7.7 percent in August, up from a revised 7.4 percent in July, and up from 5.5 percent a year earlier.  The 2.2 percentage point increase from August 2007 to August 2008 was the largest year-over-year increase since July 1991.  However, as much as a third of that jump may have been due to the U.S. Bureau of Labor Statistics' practice—adopted in January 2005—of adjusting state unemployment estimates so that they add up to the national estimate.  This "benchmarking" of states' unemployment estimates has resulted in a huge increase in the variability of California's unemployment statistics. 
  • Home building slowed considerably in August, with slowdowns in both single and multi-family home building.  Residential permits were issued at a seasonally adjusted annual rate of 55,645 units, down over 56.2 percent from a year earlier.  Single-family permits were down 55.0 percent, while multi-family permitting was down 57.4 percent.  New home permitting during the first eight months of 2008 was down 43.8 percent from the same months of 2007 and down 60 percent from the same period of 2006.
  • Nonresidential construction also slowed in August.  Nonresidential construction permitting was down 21.9 percent in August from a year earlier.  For the first eight months of 2008 as a whole, nonresidential permitting was down 5.5 percent from the same months of 2007. 
  • In August, California real estate markets basically moved sideways.  Existing home sales and home prices were essentially unchanged from July.  Sales of existing single-family detached homes totaled 490,850 units at a seasonally adjusted annualized rate, according to the California Association of Realtors.  Inventories remained elevated—although much better than at the beginning of the year.  The Association’s unsold inventory index stood at 6.7 months in August for the second consecutive month.  The median price of existing, single-family homes sold in August was $350,140, essentially unchanged from July, but down 40.5 percent from August 2007


Monthly Cash Report

Preliminary General Fund agency cash for October was $923 million below the 2008-09 Budget Act forecast of $10.667 billion.  September’s revenues include the third estimated payments for personal income tax filers and calendar-year corporations.  Year-to-date revenues are $1.06 billion below the $22.58 billion that was expected.

  • Personal income tax revenues to the General Fund were $289 million below the month’s forecast of $5.836 billion.  Withholding was $23 million above the estimate of $2.543 billion but estimated payments showed significant weakness coming in $337 million below the expected level of $3.267 billion.  Other receipts were $35 million above the forecast of $305 million and refunds were $14 million above the projected level of $175 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 $4 million below the month’s estimate of $104 million. Year-to-date General Fund income tax revenues are $98 million below estimate.

  • Sales and use tax receipts were $212 million below the month’s forecast of $2.249 billion.  September represents the second prepayment for third quarter taxable sales.  A more complete picture of third quarter sales activity will be available when final payments for the quarter are received in late October and early November.  The shortfall in this revenue source can be attributed to the weak economy.  Year-to-date, the sales tax cash is $515 million below forecast.

  • Corporation tax revenues were $426 million below the month’s estimate of $2.238 billion.  The loss was due to sagging prepayments, which were $468 million lower than the forecast of $2.095 billion.  Other payments were $18 million above the $242 million that was expected and refunds were $24 million below the projected level of $99 million.  Year-to-date revenues are $428 million below estimate.

  • Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes were $32 million above the month's estimate of $185 million.  The remaining revenues—pooled money interest income and “other” revenues—were $28 million below the month's estimate of $159 million.

This bulletin reflects revenue receipts under the agency cash basis.  Actual General Fund revenue receipts as posted by the State Controller's Office is generally different from the results from the agency cash revenue receipts due to timing.  This is due to lags between the time tax agencies record tax payments and refunds, and the time these amounts are reported to and recorded by the Controller's Office accounts.   For the month of September, the loss in the major three revenue sources is $927 million under agency cash basis and $814 million per the Controller's accounts – a difference of $113 million.  The Personal Income Tax accounts for $19 million of the difference, the Corporation Income Tax accounts for $10 million, and the Sales and Use Tax accounts for $84 million. Sales tax cash numbers are often different because payments are due at the end of the month.  In the preliminary Official Statement for the RANs offering, we note that the state's General Fund revenues on a budgetary basis could be adjusted downward by $3 billion for this fiscal year.  This projection is consistent with both the agency cash basis revenue receipts for September reported here as well as with the Controller's cash cited in the preliminary Official Statement.

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