Economic Update

The home building and public sectors continue to counter weakness in other industries leaving California’s economy in a holding pattern.

Industry employment in California fell by 10,500 in November, which means that despite the growth achieved in October, the state has lost 15,700 jobs over the last three months. All told, during the first 11 months of 2002, nonfarm employment has fallen by an average of 800 jobs per month.
The foremost source of November’s weakness was manufacturing, which is still hampered by continuing losses in the high technology sectors. Both durable and nondurable manufacturing employment declined, for an overall loss of 9,700. High tech manufacturing accounted for 3,000 of these losses. Moreover, manufacturing losses have accelerated recently. During the past five months the state lost an average of 7,880 manufacturing jobs each month. During the first six months of the year losses averaged 3,250. Both the durable and nondurable sectors have worsened.
Gains in federal employment made government the leading job gainer in November. The continuing transition of airport security screeners to federal payrolls boosted federal employment in California by 2,500, nearly half of the overall public sector growth. State government payrolls outside of educational institutions dropped by 600 (not seasonally adjusted) in November.
Finance and mining were the only other expanding sectors, adding 2,400 and 100 jobs respectively. Service industries dropped 4,100 jobs with notable weakness in computer programming and temporary services. Construction dropped 1,800 jobs. Falling airline employment led the transportation and utility sector to shed 1,500 workers. Wholesale and retail trade employment fell by 1,100.
Since November 2001 was the recession’s lowest point for industry employment, last month’s total of 14,647,000 jobs, actually represents a negligible year-over-year gain. Losses in manufacturing (63,100), transportation and public utilities (23,100), construction (8,400), and mining (600) were compensated for by growth in government (58,200), wholesale and retail trade (33,700), services (5,900), and finance, insurance and real estate (200).
California’s unemployment rate has been essentially unmoved throughout most of the year—varying little from the 6.4 percent rate posted in November.
Home sales rebounded in October following September’s slump. Existing home sales reached a seasonally adjusted annual rate of 579,240 units in October, a 17 percent increase from one year ago.
Despite rising sales, California single-family home prices continued to hover near the $324,000 mark in October. The median price dropped slightly from September to $322,730.
A burst of permit issuances for apartment construction in Los Angeles helped boost residential building in California in October by 19.5 percent—for a seasonally adjusted annual rate of 208,268 single and multi-family units. This is the second consecutive monthly gain following September’s 11 percent advance. On a year-to-date basis, nonresidential construction permitting during the first 10 months of 2002 exceeds the 2001 rate by almost 11 percent.
Nonresidential construction also gained 7.8 percent in October, spurred by a surge of industrial construction activity.

Manufacturing Losses Accelerate

Monthly Cash Report

Preliminary General Fund agency cash for November was $239 million above the 2002 Budget Act forecast of $4.386 billion. Year-to-date, revenues are $154 million below expectations. However, adjusting for accounting differences in “other” revenues, cash for November is $286 million below forecast and cash year-to-date is $679 million below forecast.

Personal income tax revenues were $285 million below the month’s forecast of $1.927 billion. Withholding was $255 million below the estimate of $2.044 billion—11.2 percent below the year-ago level. Other receipts were $29 million higher than the forecast of $150 million, and refunds were $59 million greater than the projected level of $267 million. For the year to date, this tax is $579 million under forecast.
Sales and use tax receipts were $202 million below the month’s forecast of $2.184 billion. November cash includes the final payment for third quarter sales, as well as the first prepayment for fourth quarter sales. Some of this loss appears to be attributable to the first prepayment of fourth quarter sales, which was weaker than forecast. However, due to the late Thanksgiving holiday, a portion of the shortfall may be due to cash flow. Through November, the sales tax is $93 million below expectations.
Corporation tax revenues were $37 million above the month’s forecast of $19 million. Prepayments were $6 million below the estimate of $95 million, while other payments were $17 million above the $85 million estimate. Refunds were $26 million below the projected level of $161 million. To date, this tax is down $80 million from forecast.
Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes came in $26 million above the $106 million that was expected. The remaining revenues—pooled money interest income and “other” revenues—were $663 million above the month’s estimate of $150 million. Most of this gain in the “other” revenues is due to how interest on the energy bonds was counted. Adjusting for this accounting difference, we estimate “other” revenues were actually about $270 million for November, or $136 million above forecast. We believe this gain is due to cash flow.

General Fund Agency Cash
2002-03 Budget Act Forecast

2002-03 Comparison of Actual and 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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