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California Department of Finance: Monthly Finance Bulletins

Finance Bulletin: March 2007

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Economic Update

The latest annual revisions to California employment estimates released by the Employment Development Department at the beginning of March indicate that California's job growth throughout most of 2006 was considerably stronger than previously reported. The revised figures show that average nonfarm payroll employment was 1.9 percent higher in 2006 than in 2005, a big improvement over the 1.5 percent originally reported. The number of new jobs created between December 2005 and December 2006 was 260,000, as compared to the previously reported 170,300.

  • California ended 2006 gaining 24,200 jobs in December, yielding an average monthly gain of 21,700 jobs in 2006.  The revised average monthly gain in 2005 was 27,200. 

  • By major industry sector, the main contributors to the upward revision were trade, transportation, and utilities, up 33,300, professional and business services, up 22,600, and construction, up 18,200.

  • The revisions also resulted in annual average job growth being stronger in 2006 (1.9 percent) than in 2005 (1.8 percent). This is surprising given the employment drag created by the downturn in the state's housing sector in 2006. Much improved job growth in the San Francisco Bay Area accounted for a large share of the state's overall upward revision.

  • Despite the dramatically improved picture of 2006, the state started out 2007 with mixed news. Nonfarm payroll employment fell by 4,500 jobs in January, but the state's unemployment remained at 4.8 percent. 

  • Seven of the 11 major industry sectors gained jobs in January, but job losses of 8,000 jobs in leisure and hospitality and 7,200 in information (primarily film production and sound recording) more than offset the total gain of the sectors gaining jobs. The loss of jobs in leisure and hospitality in January was due, in part, to poor snowfall, which hurt the state's skiing industry.

  • Seven of the major industry sectors gained jobs over the 12 months ending in January 2007. Employment over the year rose by 63,599 in Professional and Business Services; 49,599 in Trade, Transportation, and Utilities; 42,599 in Educational and Health Services; 40,800 in Government; 37,599 in Leisure and Hospitality; 9,699 in Other Services; 4,899 in Construction; 2,500 in Financial Activities; 1900 in Natural Resources and Mining; and 1,900 in Information.

  • The state's unemployment rate remained at 4.8 percent in January with offsetting increases in both the number of employed and unemployed. As expected, the volatility in California's unemployment readings for 2006 was largely erased by the recent revisions. The volatility increased dramatically with the introduction of the U.S. Bureau of Labor Statistics' new method for estimating unemployment rates in January 2005. 

  • Home building in California essentially held steady in January. Permits were issued at a seasonally adjusted annual pace of 137,000 units, very similar to the 131,000 pace in November and December's 134,000 pace. While this is
    very subdued compared to a year earlier (down nearly 21 percent), it represents some welcome stability after the
    pace of residential construction slowed dramatically after peaking in mid-2005.

  • A strong rebound in office construction and in alterations and additions boosted the value of nonresidential construction permits issued in January nearly 55 percent from December 2006. The pace was, however, down 4.7 percent from a year earlier.

  • California's existing home market started 2007 off with mixed news. At a seasonally adjusted annual rate of 437,600 units in January, existing single-family home sales were down almost 13 percent from a year earlier.

  • The median price of existing single-family homes sold in January was $559,640, a 1.9-percent gain from a year earlier. Even though the state's median price was still below its August peak, it has remained close to $555,000 since September 2006.

Monthly Cash Report

Preliminary General Fund agency cash for February was $51 million above the 2007-08 Governor's Budget forecast of $4.049 billion. Year-to-date revenues are $847 million below the $58.457 billion that was expected.

  • Personal income tax revenues to the General Fund were $93 million below the month’s forecast of $1.490 billion.  Withholding was $16 million above the month’s estimate of $2.778 billion and other receipts were $5 million under the projected level of $376 million. Refunds were $106 million above the anticipated $1.637 million. Since February is the first month of several significant months for 2006 tax year refunds, it is not clear how much of this month's variance may be due to cash flow. Year-to-date General Fund income tax revenues are $1.239 billion below estimate.  Proposition 69 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 $2 million below the estimate of $27 million.

  • Sales and use tax receipts were $263 million above the month’s forecast of $2.076 billion. February cash includes the remaining portion of the final payment for fourth quarter 2006 sales, which was due January 31. In addition, the first prepayment for first quarter 2007 was due in February. Year-to-date, the sales tax cash is $116 million above expectations.

  • Corporation tax revenues were $132 million below the month’s estimate of $268 million. Prepayments were $73 million below the forecast of $186 million and other payments were $67 million under the $178 million that was expected. Refunds were $8 million below the projected level of $96 million.  Year-to-date revenues are $279 million above estimate.

  • Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes were $16 million above the month's forecast of $54 million. The remaining revenues—pooled money interest income and "other" revenues—were $3 million lower than the estimate of $161 million.  

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