California received good economic news on retail sales as 2004 drew to a close.
Home sales and home construction were also strong. Real estate prices appear
to have stabilized. Commercial construction was also strong. However, the news
on jobs was disappointing, although the unemployment rate held steady at 5.8%.
- Retail hiring was softer than usual in December, as the
gain in retail employment from November to December, on a seasonally unadjusted
basis, was about 40 percent lower than the average gain in 1991 through 2003.
But retailers added more jobs than usual in October and November of last year.
Holiday hiring followed that same pattern in the nation as a whole, where
it was attributed to retailers having generally high expectations in the fall
for the coming holiday buying season, only to have them dashed by disappointing
sales on weekend following Thanksgiving.
- Home building bounced back in November. Home building permit
issuances surged over 40 percent in November after dropping nearly 23 percent
in October. The issuance of permits for 247,000 units on a seasonally adjusted
annual rate basis was 31 percent above the pace set in November 2003. Single-family
permits registered a 15.6 percent year-over-year gain, while the more volatile
multi-family sector posted a 72.3 percent increase from a year ago. For the
first 11 months of the year as a whole, residential construction permitting
is up 6.3 percent from the same months of 2003.
- November was also a good month for nonresidential building.
The value of permits issued increased smartly in November after four consecutive
months of deceleration. A resurgence in office permits boosted November's
construction pace 25 percent above its year-ago rate. During the first 11
months of 2004, office building permit issuances were up nearly 46 percent
from the same months of 2003.
- California's home prices regained some ground in November, after sliding
in September and October. The median price of existing single-family homes
sold in November, $473,260, was a 2.9 percent increase from October and is
over 23 percent higher than one year ago. This price is still within the range
that the state's median has bounced along in since May 2004. From May through
November the median price averaged $467,000, increasing an average of only
0.6 percent each month.
- Sales of single-family homes have shown similar stability. Even though home
sales reached a seasonally adjusted annual rate of 653,000 units in November,
the average pace of sales since August 2003 has been 627,000 units. The rate
has varied little from this average in all but a couple of months.
- The loss of 25,000 nonfarm payroll jobs in December was disappointing news
for California. This drop, though, is not necessarily indicative of general
weakness, as two industries, retail trade and motion pictures were largely
responsible for the drop.
In contrast, the nation gained 157,000 jobs in December.
- The motion picture industry is typically a volatile industry, and December's
weakness followed strong gains in October and November. Even though it shed
jobs in December, Motion Picture and Sound Recording employment (unadjusted)
was up 2,100, or 1.5 percent, from a year ago.
- Six of 11 major industry sectors gained jobs in December. Construction led
the way with a gain of 5,300, not surprising given the recent strong construction
activity. In addition, employment rose by 3,900 in Professional and Business
Services; 2,200 in Financial Activities; 800 in Manufacturing; and 100 each
in Education and Health Services, and Natural Resources and Mining.
- Employment losses were led by 16,400 in Trade, Transportation and Utilities,
reflecting the weaker than normal retail hiring. Information employment dropped
10,800, with Motion Picture and Sound Recording largely responsible. Leisure
and Hospitality lost 4,200; Government, 4,200; and Other Services, 1,800.
- The state's unemployment rate held steady at 5.8 percent in December (November's
rate was originally reported at 5.7 percent). The national unemployment rate
also was unchanged in December, at 5.4 percent. Over the past year the state's
unemployment rate has dropped 0.7 percentage point while the nation's fell
only 0.3 points. The number of employed Californians dropped by 22,000, while
unemployment fell by 10,000 in December .
Have Home Prices Hit a Ceiling?
Preliminary General Fund agency cash for January was $420 million above the
2005-06 Governor's Budget forecast of $8.340 billion. The variance between January
and year-to-date cash results from differences between actual and estimated
In total, December revenues were $287 million above forecast.
- Personal income tax revenues were $344 million above the month's forecast
of $5.605 billion. Withholding receipts were $35 million below the forecast
of $3.047 billion. January's estimated payments were up $364 million above
the forecast of $2.541 billion, 28.6 percent on a year over-year basis. Even
though the fourth quarter estimated payment for the 2004 tax year is not due
until January 15, 2005, many taxpayers make their payment in December in order
to take advantage of the federal itemized deduction for state taxes paid during
the year. For December and January combined, estimated payments were about
$485 million above the forecast of $3.599 billion, which suggests that end
of-year non-wage income (e.g., investment income) was higher than expected.
January's other receipts were $75 million above the projected level of $225
million, and refunds were $57 million higher than the forecast of $169 million.
In addition, the amount transferred to the Mental Health Services Fund (MHSF)
was $3 million higher than the estimated $39 million. Proposition 63, passed
by the voters in November 2004, imposed a surcharge of 1 percent on taxpayers'
taxable income above $1 million for funding mental health service programs.
Pursuant to the Proposition, the cash amount transferred to the MHSF during
2004-05, beginning January 2005, will be 0.7 percent (0.007) of total monthly
personal income tax collections. Year-to-date cash receipts for this revenue
source in the General Fund are $440 million above estimate.
- Sales and use tax receipts were $92 million above the month's forecast of
$2.15 billion. January cash represents the final payment for fourth quarter
2004 sales, which was due on January 31. Some of the cash from this final
payment spills over into February. Based on the first few days of February
cash, January's gain appears to be a cash acceleration. Year-to-date sales
tax cash is $128 million above estimate.
- Corporation tax revenues were $237 million above the month's forecast of
$196 million. Prepayments were $30 million above the estimate of $207 million
and other payments, primarily audit and settlement moneys, were $122 million
above the $104 million estimate. Refunds were $85 million less than the $115
million estimate. Year to-date corporation tax receipts are $304 million above
- Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes
came in $1 million above the $73 million that was expected. The remaining
revenues-pooled money interest income and "other" revenues-were
$254 million below the month's estimate of $316 million. This shortfall appears
to be due simply to cash flow factors, such as receipts in January not matching
historical patterns used to allocate the forecast throughout the year. The
shortfall is expected to be made up in the coming months.
General Fund Agency Cash
2004-05 Budget Act Forecast
2004-05 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.
to the Department of Finance Home Page