August 2001

Economic Update

• The industry employment situation thus far in 2001 has changed notably from 2000. Through July, month-to-month job growth has averaged 7,230 versus over 46,000 during 2000. July’s 1.6 percent year-over-year growth rate is the slowest rate recorded since October 1994.
• Government has been the employment growth leader for the last several months with gains averaging nearly 10,000 per month in May, June, and July, while total private employment dropped in each of these months. During July, retail trade was the only private job sector to post a gain. Manufacturing employment dropped 12,000, led by losses in electronics and food processing—the latter stemming from unseasonably cool weather that delayed harvests and the bankruptcy of a major canner.
• Looking at year-over-year performance, services added the most jobs, 94,900, while construction grew the fastest, 3.6 percent. Both durable and nondurable manufacturing declined over the year—by 25,900 and 14,100 respectively.
• California’s unemployment rate dropped two-tenths of a percent in July to 4.9 percent—0.1 percent below the year-ago rate. Household employment rose by 12,000 in July, while the number of people unemployed fell by 43,000.
• Regionally, the most dramatic changes in the employment picture are occurring in the high tech centers of the San Francisco Bay Area. A year ago overall industry employment in this region posted a 4.9 percent annual growth rate. In July 2001, employment rose only 1.1 percent from the comparable 2000 level. More tellingly, employment in business services, which is dominated by computer programming and internet-related services, slowed from a 20 percent year-over-year rate a year ago to only 1.7 percent this year. In the Silicon Valley, year-over-year business service employment growth was running at a 21 percent rate a year ago but in July it actually declined 4.1 percent from a year ago.
• California’s construction picture was a bit hazy in June. Residential construction, measured by permitted units, posted a nearly 30 percent year-over-year drop, principally reflecting comparison to last June’s abnormal burst of multifamily activity. In addition, single-family construction fell for the fifth month in a row to its lowest pace since May 1998. Nonetheless, during the first six months of 2001, residential construction was up over 6 percent from the first half of 2000. Construction in the volatile nonresidential sector dropped over 22 percent from June 2000, measured by permit values.
• California’s real estate market was also mixed in June. Statewide sales of single-family homes rose over the month but were down 6.4 percent from a year ago. The state’s inventory index for existing, single-family homes—the number of months needed to exhaust the supply of homes on the market at the current sales rate—in June was 3.6 months, compared to 3.0 months a year ago. Despite weakening sales, the statewide median price continued to climb, rising 9.8 percent above the June 2000 price.
• Home sales have slowed the most dramatically in the San Francisco Bay area. Sales in San Jose—the Silicon Valley—fell 27 percent from a year ago, while home prices were nearly stagnant, rising a meager 1.1 percent. In contrast, home sales and prices posted strong gains in Southern California.

  Computer Services Slowdown Hits Bay Area Hardest

Preliminary General Fund agency cash for July was $174 million above the 2001 Budget Act forecast of $3.666 billion.

• Personal income tax revenues were $109 million above the month’s forecast of $1.984 billion. Withholding receipts, which were 2.3 percent above the year-ago level, were $103 million above the month’s estimate of $1.879 billion. Other receipts were $36 million above the projected level of $209 million and refunds were $30 million above the estimate of $104 million.
• Sales and use tax receipts were $68 million above the month’s forecast of $1.314 billion. Preliminary information, however, indicates that this gain was offset by lower receipts in early August. As a note, the final payment for second quarter taxable sales was due at the end of July, and a portion of this payment is received in early August. Thus, at this time the second quarter final payment appears to be tracking the estimate.
• Bank and corporation tax revenues were $67 million below the month’s forecast of $214 million. July is not a key month for this tax. The next significant month will be September when the third estimated payment is due for calendar year corporations.
• Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes came in $3 million above the $124 million that was expected. The remaining revenues—pooled money interest income and "other" revenues—were $61 million above the month’s estimate of $30 million, part of which could be due to cash flow factors.

General Fund Agency Cash
2001-02 Governor's Budget Forecast

2000-01 Comparison of Actual and 2001 Budget Act Forecast 
Agency General Fund Revenues

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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