Economic Update

By many measures, the California economy is in better shape today than it was in 2003. The state's labor market has been on an upswing for the last several months. Since March 2004, the unemployment rate has dropped steadily, while industry employment has risen by 114,800. In October, California gained more than its share of national job gains. The positive labor market news is buttressed by healthy home building activity and steady growth in commercial construction, particularly offices.

Nonfarm payroll employment rose by 43,500 in October, the best month-to-month gain since November 2000. On a year-over-year basis, industry employment has risen by nearly 126,600, or 0.9 percent.

The job gains were very wide spread, with nine of 11 major industry sectors adding jobs in October. Professional and Business Services led the way, adding 16,300 jobs, boosted by a strong gain in employment services. Information added 11,400, Trade Transportation and Utilities, 9,100; Leisure and Hospitality 7,300; Education and Health Services, 4,700; Construction, 2,100; Manufacturing, 1,500; Financial Activities, 900; and Other Services, 800.

The only major sectors to lose jobs in October were Government and Natural Resources and Mining. The public sector lost 10,300 jobs, with local government accounting for the lion's share. Resource extraction industries lost 300 jobs.

In line with the strong payroll employment gain, the state's unemployment rate dropped substantially, falling to 5.7 percent from 6.0 percent in September—the lowest rate since September 2001. Civilian employment rose 70,000, while unemployment dropped 41,000. Over the year, California's unemployment rate has dropped a full percentage point, with civilian employment rising by 386,000 and unemployment falling 154,000. The state's unemployment rate in October was a mere 0.2 percentage point above the national rate.

Home building gathered some momentum in September. Permits were issued for 225,000 residential units on a seasonally adjusted annual rate basis, an improvement on the 206,000-unit pace set in August. Both single-family and multi-family construction made significant gains. With Southern California leading the way, residential construction permitting during the first nine months of the year is up over 11 percent from the same months of 2003.

Nonresidential building slowed in September for the third consecutive month, but largely due to the remarkably high level of activity in June. Total nonresidential construction in September reached a seasonally adjusted-annual rate of $15.2 billlion, as measured by the value of permits issued. On a year-to-date basis, total nonresidential construction was up almost 12 percent from of the first nine months of 2003.

A major acceleration of office construction is a good barometer of general business conditions. Office building permit issuances surged in August and September and were up substantially from a year ago—over 200 percent on an unadjusted basis. On a year-to-date basis, office construction is running about 63 percent ahead of last year.

California's real estate market may be losing some steam. Home prices dropped in September. The median price of existing single-family homes sold, $465,540, was a 1.7-percent drop from the August median. Even though on a year-over-year basis home prices are still substantially higher—up 21 percent from September 2003—the state's median home price has stayed within a narrow range for several months now. Since May 2004, the median existing single-family home price has not strayed far from an average of $467,000.

Similarly, home sales cooled in August and September, dropping below the pace set at the same time last year. Existing single-family home sales reached a seasonally adjusted annualized rate of 626,220 units in September, a 0.9-percent drop from a year ago. Sales in August were 8.5 percent below their year ago pace.

Unemployment Rate Falling

Monthly Cash Report

Preliminary General Fund agency cash for October was $471 million above the 2004 Budget Act forecast of $4.385 billlion. Year-to-date, revenues are $1.08 billlion above expectations, primarily due to strength in the corporation tax.

Personal income tax revenues were $249 million above the month's forecast of $2.368 billlion. Gains were achieved across the board. Withholding came in $98 million above the $2.088 billlion that was estimated, other receipts were $58 million above the forecast of $655 million, and refunds were $93 million below the projected level of $375 million. Year-to-date through October, this tax is $291 million above forecast.

Sales and use tax receipts were $17 million above the month's forecast of $1.613 billlion. The final payment for third-quarter taxable sales was due at the end of October and a portion of this payment is received in early November. At the time this bulletin was prepared, early November receipts were not yet complete; a clearer picture of third-quarter sales will be available by late November. Year-to-date, the sales tax is $17 million above forecast.

Corporation tax revenues were $123 million above the month's forecast of $264 million. Prepayments and other payments were $23 million and $148 million above the estimates of $235 million and $151 million, respectively. This gain was partially offset by refunds, which were $48 million above the projected level of $122 million. Year-to-date, this tax is up $607 million from forecast.

Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes came in $20 million above the $74 million that was expected, due to the estate tax. The remaining revenues—pooled money interest income and "other" revenues—were $62 million higher than the month's estimate of $66 million, due to greater-than-expected "other" revenues.

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.

Return to the Department of Finance Home Page