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California Department of Finance: Monthly Finance Bulletins

Finance Bulletin: September 2007

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Economic Update

Economic indicators were disappointing in July, a reflection of the worsening of the housing sector downturn. Payroll employment dropped, the state's unemployment rate rose slightly, existing home sales slowed, and residential construction remained sluggish.

  • Nonfarm payroll employment fell by 8,600 jobs in California in July, when it rose by 68,000 in the nation. Over the 12 months from July 2006 to July 2007, California nonfarm payroll employment grew by a 173,000, or 1.1 percent, while nationally, nonfarm payrolls grew by 1.4 percent.
  • Seven of the 11 major industry sectors posted job gains in July. Government led the way with a gain of 5,100. The rest of the gains were small and spread across the other sectors. Professional and business services added 800 jobs; financial activities, 500; other services, 400; manufacturing, 200; leisure and hospitality, 200; and natural resources and mining, 100.
  • Among the declining industries in July, construction lost 7,800 jobs; information, 6,300; trade, transportation, and utilities, 1,100; and educational and health services, 700.
  • On a year-over-year basis, seven major industry sectors gained jobs in July. Employment rose by 49,000 in government; 45,300 in educational and health services; 41,400 in leisure and hospitality; 38,700 in professional and business services; 21,800 in trade, transportation, and utilities; 9,200 in other services; and 200 in natural resources and mining.
  • Over the year, employment fell by 18,000 in construction, 6,000 in information, 5,200 in financial activities; and 3,400 in manufacturing.
  • The state's unemployment rate increased by 0.1 percentage point to 5.3 percent in July. The national unemployment rate increased by 0.1 percentage point to 4.6 percent. The gap between the state and national unemployment rates—currently 0.7 percentage point—has widened considerably since January when it was 0.2 percentage point. In July 2006, California's unemployment rate was 4.8 percent.
  • A significant jump in multi-family residential permitting in July led to a modest improvement in total new home building. The volatile multi-family sector accelerated to a 49,000-unit pace, a 53-percent jump from June. Conversely, permitting for single family residences slipped to 65,000 units from the 68,000-unit seasonally adjusted annual rate posted in June. Residential construction permitting during the first seven months of 2007 was off over 30 percent from the same months of 2006.
  • Nonresidential construction permitting improved in July from the prior month, but was down slightly from a year earlier—the third consecutive year-over-year decline. The value of nonresidential construction permits issued during the first seven months of 2007 was up 3.9 percent from the same period of 2006. The strongest gains occurred in office construction and in additions and alterations.
  • Sales of existing single-family homes slowed for the fifth consecutive month in July, to 351,000 units on a seasonally adjusted annual rate basis. This was nearly 23 percent below the year-ago pace, which made July the 22nd consecutive month of declining year-over-year home sales.
  • The median price of existing single-family homes sold in July dropped from June, to $586,030, just 3.2 percent higher than a year earlier.

Monthly Cash Report

Preliminary General Fund agency cash for August was $169 million above the 2007-08 Budget Act forecast of $6.314 billion. Year-to-date revenues are $25 million above the $11.706 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 $242 million below the month’s forecast of $3.266 billion. The loss was primarily due to lower-than-expected collections from prior-year liabilities (e.g. audit and settlement receipts). The "other receipts" category, which includes prior-year payments, was $245 million below the estimate of $505 million. Final returns and estimated payments combined were $75 million lower than the forecast of $250 million. Withholding was $89 million above the projected level of $2.764 billion and refunds were $16 million above the forecast of $194 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 $5 million below the estimate of $59 million. Year-to-date General Fund tax revenues are $379 million below estimate.
  • Sales and use tax receipts were $60 million above the month’s forecast of $2.658 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 $93 million above forecast.
  • Corporation tax revenues were $34 million below the month’s estimate of $193 million. Prepayments were $36 million lower than the forecast of $172 million and other payments were $14 million below the $112 million that was expected. Refunds were $16 million below the projected level of $91 million. Year-to-date revenues are $22 million below estimate.
  • Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes came in $368 million above the $62 million that was expected. Receipts from the insurance tax were $367 million above the $25 million expected for the month. The gain is attributed to an acceleration of receipts into August that were due on September 1. It is expected this gain will be offset by lower insurance receipts in September. Of the remaining revenues, pooled money interest income was $17 million above the month's estimate of $53 million; the year-to-date shortfall appears to be cash flow-related as interest earned in August was not transferred to the General Fund until early September. The forecast for other revenues was updated to reflect actual cash for July and August. Thus, there is no variance between the revised estimate and the actual for this month or for the year-to-date.

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