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Finance Bulletin: December 2007

Economic Update

Labor markets cooled in October, weighed down by continued housing woes.  Nonfarm employment fell and the year-over-year pace of growth dipped below one percent for the first time since June 2004.  Real estate markets weakened again in October.

• Nonfarm payroll employment fell by 15,800 in October.  Meanwhile, the September gain was revised up to 12,100 from the 9,300 originally reported.  The average monthly gain for the first 10 months of 2007 was 5,800.  The average gain for the same months of 2006 was 20,900. 
• Only two major industry sectors gained jobs in October.  Professional and business services added 2,700 jobs; and educational and health services, 700. 
• There were job losses in October in the other nine major industry sectors.  Information lost 6,300 jobs; construction, 4,200; trade, transportation, and utilities, 2,100; leisure and hospitality, 1,800; manufacturing, 1,500; financial activities, 1,500; other services, 1,300; government, 300; and natural resources and mining, 200.
• The housing slump was the principal source of October's weakness.  Employment losses in construction, retail trade, and financial activities accounted for nearly half of the overall drop. These sectors account for about a quarter of total employment.
• Over the 12 months ending with October 2007, California nonfarm payroll employment grew 109,000, or 0.7 percent, while national nonfarm payrolls grew 1.2 percent.  Employment rose 50,700 in educational and health services; 44,500 in government; 26,600 in leisure and hospitality; 23,400 in professional and business services; 12,300 in trade, transportation, and utilities; 5,700 in other services; and 2,100 in information.  
• Over the year, employment fell by 31,000 in Construction; 12,900 in Financial Activities; 11,900 in Manufacturing; and 500 in Natural Resources and Mining.California's unemployment rate held steady at 5.6 percent in October.  A drop in the number of persons unemployed was counterbalanced by a drop in employment.  The unemployment rate was 4.8 percent in October 2006.
• After stumbling severely in September, the pace of home building improved modestly in October, but was still subdued.  Both single and multi-family sectors improved slightly.  Residential permitting in October reached 94,000 units on a seasonally adjusted annual rate basis.  This pace is off 65 percent from the peak reached in September 2005.  Residential construction permitting during the first ten months of 2007 was down over 30 percent from the same months of 2006.
• Nonresidential construction permitting slowed slightly in October, down 3 percent from September.  During the first ten months of 2007 permitting was up 4.2 percent from the same period of 2006.  Nonresidential construction has been on a gradual slowing trend since early in 2006.
• Compounding the steep drop in September, home sales slowed again in October, for the eighth consecutive month-over-month decline.  Sales of existing single-family homes slid to 265,000 units on a seasonally adjusted annual rate basis, down over 40 percent from a year earlier, according to the California Association of Realtors.  

• Weakening sales put further downward pressure on home prices in October.  The median price of existing single-family homes sold in October dropped 6.4 percent from September.  The price, $497,100, was almost 10 percent lower than a year earlier, making October the second consecutive month with a year-over-year decline.  Some of this decline was likely due to credit constrictions in the jumbo loan market, which could have depressed sales of homes with mortgages exceeding the conforming loan limit of $417,000

Monthly Cash Report

Preliminary General Fund agency cash for November was $534 million above the 2007-08 Budget Act forecast of $5.179 billion.  Year-to-date revenues are $665 million below the $34.384 billion that was expected.

• Personal income tax revenues to the General Fund were $93 million above the month’s forecast of $2.526 billion.  Withholding receipts were $108 million above the estimate of $2.785 billion.  Other receipts were $75 million below the projected level of $434 million but this loss was partially offset by refunds which came in $62 million lower than the anticipated $648 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 November was $2 million above the estimate of $45 million.  Year-to-date General Fund income tax revenues are $432 million below estimate.

• Sales and use tax receipts were $25 million above the month’s forecast of $2.532 billion.  November cash includes includes the final payments for third quarter sales, as well as the first prepayment for fourth quarter sales.  Year-to-date, the sales tax cash is $509 million below forecast.   

• Corporation tax revenues were $18 million above the month’s estimate of -$74 million.  Prepayments were $78 million lower than the forecast of $185 million and other payments were $71 million above the $80 million that was expected.  Refunds were $25 million below the projected level of $339 million.  Year-to-date revenues are $42 million below estimate.

• Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes were $353 million above the month's forecast of $61 million.  Receipts from the insurance tax were $351 million above the $23 million expected for the month.  The gain is attributed to an acceleration of receipts into November that were due on December 1.  It is expected this gain will be offset by lower insurance receipts in December.  Of the remaining revenues, pooled money interest income was $8 million below the forecast of $51 million and "other" revenues were $53 million higher than the November estimate of $83 million.

For more information, please contact the California Department of Finance, Room 1145, State Capitol, Sacramento, CA or call (916) 323–0648.

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