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California Department of Finance: Monthly Finance Bulletins

Finance Bulletin: October 2007

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Economic Update

As summer came to a close, the effects of the on-going housing slump and recent financial turmoil were evident in a variety of economic data releases.  In recent employment estimates, the construction and finance sectors were notable sources of weakness.  Home building and home sales remained sluggish.

  • Nonfarm payroll employment rose by 21,000 jobs in California in August.  Over the 12 months from August 2006 to August 2007, California nonfarm payroll employment grew by a 163,300, or 1.1 percent, while nationally, nonfarm payrolls grew by 1.2 percent.

  • California's largest job gain in August was in government—adding 12,100 jobs or over half of the state's total gain—with most of it in local education.  However, government employment estimates, and education in particular, are prone to significant revisions, particularly during the back-to-school season.  The initial government employment estimate for July showed a gain of 5,100 which was subsequently revised to a loss of 500.

  • Among the other sectors, private educational and health services added 9,100 jobs; trade, transportation, and utilities, 4,000; information, 3,000; professional and business services, 2,700; leisure and hospitality, 2,400; and other services, 800.  The small natural resources and mining sector held steady in August.

  • Employment fell in three major sectors in August.  Construction lost 6,600 jobs; manufacturing, 4,000; and financial activities, 2,500.

  • Over the 12 months ending in August, employment rose by 51,600 in government; 49,600 in educational and health services; 42,600 in leisure and hospitality; 35,200 in professional and business services; 18,200 in trade, transportation, and utilities; and 8,300 in other services.  Employment fell by 24,300 in construction, 7,300 in information, 6,900 in financial activities; and 3,700 in manufacturing.

  • The state's unemployment rate increased by 0.2 percentage point to 5.5 percent in August. The national unemployment rate held steady at 4.6 percent.

  • As in July, a rise in multi-family residential permitting in August overcame a drop in single-family building and yielded a small gain in total new home building.  The volatile multi-family sector accelerated to a 51,000-unit pace.  Conversely, permitting for single family residences slipped to 61,000 units from the 66,000-unit seasonally adjusted annual rate posted in July.  Still, residential construction permitting during the first eight months of 2007 was off nearly 29 percent from the same months of 2006. 

  • A jump in hotel/motel construction in August led to an acceleration in nonresidential construction permitting.  The value of nonresidential construction permits issued during the first eight months of 2007 was up 5.3 percent from the same period of 2006.  The largest contributors to this gain were office construction and additions and alterations.

  • Sales of existing single-family homes slowed for the sixth consecutive month in August, to 319,200 units on a seasonally adjusted annual rate basis. This was nearly 28 percent below the year-ago pace.  August was thus the 23rd consecutive month of declining year-over-year home sales.

  • The median price of existing single-family homes sold in August rose slightly from July, to $588,030.  This is just 2.0 percent higher than a year earlier.

Monthly Cash Report

Preliminary General Fund agency cash for September was $809 million below the 2007-08 Budget Act forecast of $10.962 billion.  Year-to-date revenues are $777 million below the $22.668 billion that was expected.

  • Personal income tax revenues to the General Fund were $11 million above the month’s forecast of $5.568 billion.  Withholding was $10 million above the estimate of $2.422 billion and estimated payments came in $9 million below the projected level of $3.08 billion.  Other receipts were $7 million below the forecast of $341 million and refunds were $17 million below the $175 million that was expected.  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 September corresponded to the month’s estimate of $100 million.  Year-to-date General Fund income tax revenues are $367 million below estimate.

  • Sales and use tax receipts were $375 million below the month’s forecast of $2.304 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.  It appears that a moderating economy is negatively impacting retail sales.  Year-to-date, the sales tax cash is $276 million below forecast.   

  • Corporation tax revenues were $36 million below the month’s estimate of $2.344 billion.  Prepayments were $17 million lower than the forecast of $2.214 billion and other payments were $17 million below the $225 million that was expected. Refunds were $2 million above the projected level of $95 million.  Year-to-date revenues are $58 million below estimate.

  • Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes were $384 million below the month's estimate of $569 million.  The lower insurance tax receipts of $385 million in September were due to timing of estimated payments; August receipts had been $367 million above forecast.  The remaining revenues—pooled money interest income and “other” revenues—were $25 million below the month's estimate of $177 million.

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