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Finance Bulletin, September 2008

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Economic Update

California labor markets continued to slide in July.  The state lost nonfarm jobs and the unemployment rate inched up.  On the housing front, home sales improved as prices dropped further; however, construction activity remained depressed.

  • Nonfarm payroll employment fell by 14,900 in California in July, following a revised loss of 13,400 in June.  The loss in June was originally reported as 12,800.   The latest loss was the fifth consecutive monthly job loss for 2008.  Since the end of 2007, the state has lost 54,000 nonfarm jobs, or 7,700 per month on average.
  • Nine of the state's 11 major industry sectors lost jobs in July, and the other two made only small gains.  Financial activities lost 5,200 jobs; information, 3,600; leisure and hospitality, 2,900; construction, 2,000; manufacturing, 1,200; government, 400; professional and business services, 200; natural resources and mining, 200; and other services, 100.  As for the gains, trade, transportation, and utilities added 600 jobs, and educational and health services, 300. 
  • From July 2007 to July 2008, the state lost 75,900 nonfarm jobs, a 0.5-percent drop, with the state’s beleaguered housing industry continuing to be the focus of most of the losses.  Employment rose 47,000 in educational and health services; 39,300 in government; 9,200 in leisure and hospitality; 6,200 in professional and business services; and 900 in natural resources and mining. Of the year's growth in government, more than three-fourths—29,800—was in local government.  Over the year, employment fell by 83,100 in construction; 35,400 in financial activities; 30,900 in manufacturing; 20,500 in trade, transportation, and utilities; 7,800 in information; and 800 in other services.
  • The state’s unemployment rate rose to 7.3 percent in July—a 12-year high.  July's unemployment rate was up 0.3 percentage point from a revised June unemployment rate of 7.0 percent and 1.9 percentage points from July 2007's unemployment rate of 5.4 percent.  This large year-over-year increase will most likely be revised down next February.  The national unemployment rate increased by 0.2 percentage point to 5.7 percent in July, leaving the gap between the state and national rates at 1.6 percentage points. 
  • Both single and multi-family home building slipped in July.  Residential permits were issued at a seasonally adjusted annual rate of 59,000 units, down over 47 percent from July 2007, which was the 29th consecutive month that posted a year-over-year decline.  New home permitting during the first seven months of 2008 was down 43 percent from the same months of 2007 and down 60 percent from the same period of 2006. 
  • Nonresidential construction permitting essentially held steady in July, with a sharp boost in office construction and a solid gain in alterations and additions offsetting losses in all other categories.     For the first seven months of 2008 as a whole, nonresidential permitting was down 3.3 percent from the same months of 2007.  
  • The state continued to work its way out of the collapse of the real estate bubble.  Existing home sales jumped in July, driving inventories down and shortening the time needed to sell a home.  The pace of sales of existing single-family homes rose 15 percent from the prior month, and was up 43 percent from a year earlier, according to the California Association of Realtors.  Its unsold inventory index inched down to 6.7 months—the lowest reading since the end of 2006.  It peaked at 16.8 months in January 2008.  Similarly, the median number of days needed to sell a home slid to 47.5 days, a 34-percent improvement from the start of the year.   Mortgage interest rates dropped in August and at the beginning of September, which should provide additional relief for real estate markets.
  • These promising signs, though, came amid continued deterioration of home values.  The median price of existing single-family homes sold in July was $350,800, a 40-percent drop from July 2007.  It remains unclear how long it will take for the pickup in sales to stem falling home prices.

       Chart: Losses Led by Housing-related Sectors

Monthly Cash Report

Preliminary General Fund agency cash for August was $124 million below the 2008-09 May Revision forecast of $6.281 billion, and year-to-date revenues are $107 million below the $11.882 billion that was expected.  Although August is a significant revenue month, September is more important because estimated payments for personal income tax filers and calendar-year corporations are due mid-month.

  • Personal income tax revenues to the General Fund were $67 million below the month’s forecast of $3.014 billion.  Withholding receipts were $65 million lower than the projected level of $2.878 billion.    Other receipts were $56 million below the anticipated $421 million and refunds came in $53 million under the estimate of $231 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 August was $1 million below the month’s estimate of $54 million.  Year-to-date General Fund income tax revenues are $193 million above estimate.
  • Sales and use tax receipts were $222 million below the month’s forecast of $2.537 billion.  August cash includes the remaining portion of the final payment for the second quarter sales, as well as the first prepayment for third quarter sales.  Year-to-date, the sales tax cash is $303 million below forecast.   
  • Corporation tax revenues were $47 million above the month’s estimate of $167 million.  Prepayments were $63 million lower than the forecast of $151 million and other payments were $89 million above the $110 million that was expected. Refunds were $21 million below the projected level of $94 million.  Year-to-date revenues are $5 million below estimate.
  • Revenues from the insurance tax were $48 million below the month’s estimate of $388 million. Since the third quarterly payment is due September 1, it is likely that this shortfall may be recovered in September’s insurance receipts.  Estate, alcoholic beverage, and tobacco taxes came in $1 million below the $37 million that was expected.  Pooled money interest income was $3 million over the $26 million that was forecasted, and "other" revenues were $164 million above the month’s estimate of $112 million due to cash flow, primarily from State Lands Royalties and miscellaneous revenues.

    Chart: General Fund Agency Cash
  • Table: 2008-09 Comparison of Actual nad Forecast Agency General Fund Revenues

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