Economic Update

August and September yielded mixed signals for California's economy. The unemployment rate dropped to its lowest point of the year in September. Industry employment, however, slid. Home building slowed slightly in August, but is still much stronger than last year. Home sales and prices both continued to improve substantially. Nonresidential construction, on the other hand, was still weak.

California's unemployment rate dropped 0.3 percentage point to 6.4 percent in September, breaking out of the 6.6 percent to 6.8 percent band it has been stuck in up to this point. Civilian employment rose by 39,000 in September, while unemployment fell 64,000. (The national unemployment held steady at 6.1 percent in September.) A year ago, California's unemployment rate was 6.7 percent.
Industry employment fell by 16,600 in September, and August's losses were revised up to 7,800 from the initially reported 1,900. From September 2002 to September 2003, California nonfarm employment fell by 51,300, or 4,275 jobs per month.
Manufacturing employment increased for the first time since April 2002, adding 3,500 jobs in September. Five other major industry sectors also added jobs. Trade, Transportation and Utilities added 4,400 jobs; Construction, 900; Other Services, 500; Professional and Business Services 300 jobs; and Financial Activities, 100.
Five major industry sectors lost jobs in September. Educational and Health Services lost 9,700 jobs; Leisure and Hospitality, 8,000; Information, 6,000; Government lost 2,300 jobs; and Natural Resources and Mining, 300.
On a year-over-year basis, five industry sectors added jobs, while six declined. From September 2002 to September 2003, employment rose by 29,000 in Leisure and Hospitality, 14,000 in Construction, 12,000 in Educational and Health Services, 11,000 in Financial Activities, and 1,000 in Natural Resources and Mining.
Over the year, employment fell by 47,000 in Manufacturing, 23,800 in Government, 19,300 in Information, 13,200 in Trade, Transportation and Utilities, 12,600 in Professional and Business Services, and 2,400 in Other Services.
Homebuilding slowed in August, following a substantial increase in July. Just as the volatile multifamily sector was responsible for July's surge, it was the chief reason for the slowdown in August. On a year-over-year basis, though, both sectors improved. Total residential construction, as measured by permit issuances reached a seasonally adjusted annual rate of 171,000 units in August, a 4.6 percent increase from a year ago. For the first seven months of 2003, residential construction averaged nearly 28 percent more than the same months of 2002, with multi-family residential construction registering the greatest gain, 52.4 percent.
Following robust activity in July, nonresidential construction slowed dramatically in August. Total nonresidential construction, as measured by the value of permits issued, fell over 21 percent from a very strong July. Store construction, which was the source of the July surge, led the slowdown in August. The pace of commercial construction during the first eight months of 2003 was off almost 5 percent from the same months of 2002.
The prospect of rising home mortgage rates stimulated existing home sales in August, boosting them nearly 15 percent above the rate registered a year ago. The sale of 645,720 units on a seasonally adjusted-annual rate basis was a stupendous 8.4 percent increase over July's pace. This August surge means that home sales during the first eight months of 2003 have slightly bettered the record setting pace set during the same months of 2002.
In concert with rising home sales, existing home prices also continued climbing. The median price of existing single-family homes sold in August topped the $400,000 mark for the first time in history. The new median price, $404,870 marked a 21 percent increase from a year earlier. Year-over-year home price appreciation has averaged over 16 percent thus far in 2003.

Home Prices Continue to Climb

Monthly Cash Report

Preliminary General Fund agency cash for September was $2.543 billion above the 2003 Budget Act forecast of $7.263 billion. However, $2.264 billion is due to tobacco bond moneys that were received in late September, rather than in October, thereby increasing the "other revenues" category. Excluding the "other revenues" category, agency cash is $369 million above forecast for the month and $514 million above forecast year-to-date. The forecast assumed $2 billion in tobacco bond revenues in 2003-04 and because $2.264 billion was received, there is a one-time real gain from forecast of $264 million for this revenue source.

Personal income tax revenues were $292 million above the month's forecast of $3.423 billion. Quarterly estimated payments were $154 million above the forecast of $1.417 billion, although the $1.571 billion received was very similar to the year-ago level of $1.581 billion. Withholding was $87 million above the projected level of $1.944 billion and 13 percent above the year-ago level. Other receipts were $75 million above the estimate of $188 million. Refunds were $24 million greater than the expected level of $126 million. For July through September, this tax is $494 million above forecast.
Sales and use tax receipts were $13 million above the month's forecast of $1.852 billion. September represents the second prepayment for third quarter taxable sales. Final payments for this quarter will be received in late October and early November, providing a more complete picture of third quarter activity. So far this year, the sales tax is $42 million above expectations.
Corporation tax revenues were $79 million above the month's forecast of $1.253 billion. Prepayments were $121 million above the forecast of $1.11 billion and miscellaneous payments were $83 million lower than the $235 million that was expected. The third prepayment for calendar year corporations, as well as estimated payments for fiscal year corporations, was due in September. Refunds were $41 million less than the forecast of $92 million. Year-to-date, this tax is up $46 million from forecast.
Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes came in $15 million below the $524 million that was expected. The remaining revenues-pooled money interest income and "other" revenues-were $2.174 billion above the month's estimate of $211 million. This is because $2.264 billion in tobacco bond moneys were received earlier than expected.

General Fund Agency Cash
2003-04 Governor's Budget Act Forecast

2003-04 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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