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Finance Bulletin: November 2007

Economic Update

The ongoing housing slowdown continues to hamper the California economy.  Construction and finance have been notable weak spots in recent employment reports.  Home building and home sales slowed significantly in September, while home prices dropped.

• Nonfarm payroll employment grew by 9,300 in September, and the August job gain was revised up by 900 to 21,900.  The average monthly gain for these months, 15,600, compares favorably to the 5,700 average monthly gain made during the first seven months of the year.  In 2006, the state added an average of 21,700 jobs each month.
• Eight of the 11 major industry sectors posted job gains in September.  The largest was in information, 7,900, based on a sizable gain in motion picture employment.  Other significant gains included private educational and health services with a 3,300 increase; leisure and hospitality, 2,600; and other services, 2,100.  Real estate troubles continued to account for the largest share of the state's job losses in September.  Construction lost 5,000 jobs; financial activities, 2,800; and professional and business services, 1,300. 
• Over the 12 months ending with September 2007, California nonfarm payroll employment grew 162,000, or 1.1 percent, while national nonfarm payrolls grew by 1.2 percent.  Employment rose 53,400 in government; 48,500 in educational and health services; 42,800 in leisure and hospitality; 29,800 in professional and business services; 15,400 in trade, transportation, and utilities; 9,300 in other services; and 7,200 in information.   Employment fell 28,600 in construction, 11,200 in financial activities, 4,500 in manufacturing; and 100 in natural resources and mining.
  The housing slowdown continued to be the chief cause of the labor market slowdown.
• Employment in construction, retail trade, and financial activities declined 0.1 percent during the first nine months of 2007 compared to the same months of the previous year.  During the same months of 2005 and 2006, these sectors grew 3.4 percent and 2.4 percent respectively.  Employment growth in other industries actually accelerated slightly during the first nine months of 2007. 
• California's unemployment rate rose for the third consecutive month in September, climbing to 5.6 percent, based on exceptionally large increases in both the number employed and unemployed.  Despite the underlying volatility, the unemployment rate has been trending up since March when it was 4.8 percent.
• After making small improvements in July and August, residential permitting fell significantly in September.  The volatile multi-family sector slowed nearly 45 percent from August—down to 40,000 units on a seasonally adjusted annual rate basis.  Single-family permitting fell 30 percent—to 43,000 units.  Total permitting during September was the weakest month since October 1998.  Residential construction permitting during the first nine months of 2007 was off over 30 percent from the same months of 2006. 
• Sharp declines in nearly every building category led to a significant slowdown in overall nonresidential construction in September.  The total value of nonresidential construction permits issued dropped 14 percent from August.  Only two building categories, office and industrial, improved in September.   During the first nine months of 2007 permitting was up 6.3 percent from the same period of 2006.  
• Sales of existing single-family homes in September dropped nearly 15 percent from August, and were down nearly 39 percent from one year earlier, according to the California Association of Realtors.  This was the most severe year-over-year slowdown in sales since June 1982.  The pace of sales slowed to 271,590 units on a seasonally adjusted annual rate basis, the first time sales has dipped below 300,000 units since 1984. 

• Faced with severe sales weakness, home prices fell dramatically.  The median price of existing single-family homes sold in September dropped nearly 10 percent from August—the steepest one-month decline on record.  September's median price, $530,830, was down 4.7 percent from a year earlier—the first year-over-year drop in home prices since the beginning of 1997.

Monthly Cash Report

Preliminary General Fund agency cash for October was $324 million below the 2007-08 Budget Act forecast of $6.537 billion.  Year-to-date revenues are $1.1 billion below the $29.205 billion that was expected.

• Personal income tax revenues to the General Fund were $159 million below the month’s forecast of $3.379 billion.  Withholding was $9 million below the estimate of $2.802 billion and other receipts were $67 million below the projected level of $1.058 billion.  Refunds were $87 million higher than the month's estimate of $420 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 $3 million below the estimate of $61 million.  Year-to-date General Fund income tax revenues are $525 million below estimate.
• Sales and use tax receipts were $159 million below the month’s forecast of $2.576 billion.  The final payment for third-quarter taxable sales was due at the end of October.  Taxpayers in certain counties who could not meet the October 31 filing deadline due to the wildfires in Southern California were eligible to receive a one-month extension on filing their tax returns.  At the time this bulletin was prepared, it was not known how many taxpayers took advantage of this extension and if the impact on October sales tax revenues was material.  Year-to-date, the sales tax cash is $435 million below forecast.   
• Corporation tax revenues were $2 million below the month’s estimate of $378 million.  Prepayments were $65 million lower than the forecast of $314 million and other payments were $8 million above the $234 million that was expected. Refunds were $55 million below the projected level of $170 million.  Year-to-date revenues are $60 million below estimate.

• Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes were $3 million below the month's estimate of $58 million.  The remaining revenues—pooled money interest income and “other” revenues—were $1 million lower than the month's estimate of $146 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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