September 2001

Economic Update

More signs of economic weakness were evident in recent construction and export activity.  Construction activity slowed again in July, principally in the San Francisco Bay area.  Exports of California-made goods grew modestly in the first quarter, then declined from year-ago levels in the second quarter.

• After June’s mixed results, California construction slowed across the board in July, with both residential and nonresidential permit volumes down from month-ago and year-ago levels.  Residential construction, measured in housing units, dropped 5.7 percent from June and over 6 percent from July 2000.  July’s seasonally adjusted annual rate of 125.2 thousand units was the slowest monthly rate in three years.  Before July’s lackluster performance, residential construction in 2001 was running comfortably ahead of 2000.  Through the first seven months of 2001, however, residential construction is besting the same period in 2000 by only 0.7 percent.
  
• Dramatic reductions in the San Francisco Bay area are the principal source of the construction slowdown.  Total residential permits year-to-date in San Francisco, San Mateo, and Santa Clara counties have dropped 42.6, 36.9, and 14.2 percent respectively from the same period in 2000.  Outside of this region, home building has actually risen 3.8 percent so far this year.  
  
• Nonresidential construction was also slow in July, down 34 percent from June and 22 percent from July 2000, as measured by building permit values.  Significant year-over-year drops occurred in all building categories except the small service station sector.  Despite the July weakness, total nonresidential construction during the first seven months of 2001 is essentially unchanged from the year-ago level. 
  
• California’s real estate market continued to show mixed results in July.  The median single-family home price was essentially unchanged from June, but sales volume dropped 4.5 percent.  On a year-over-year basis both prices and sales were up from July 2000.  Given the drop in sales, the inventory index of single family homes for sale climbed to 3.9 months from June’s 3.6 months.  The index—the number of months needed to exhaust the supply of homes on the market at the current sales rate—stood at 3.2 months a year ago.  
  
• The slowdown in home sales remains concentrated in the San Francisco Bay area.  Sales in Santa Clara County—the Silicon Valley—fell 22 percent from a year ago and notably the median home price actually declined in July by 3.4 percent.  In contrast, strong home sales and price gains continue in Southern California. 
  
•  International economic weakness is now noticeably affecting California exports.  Shipments of California-made goods to other countries in the second quarter of 2001 fell 6.6 percent below the comparable 2000 figure.  For the first half of the year, California exports were still up 2.9 percent, a gain well below last year’s 20.7 percent jump.  
  
• Second quarter weakness was confined mostly to the computers and electronics sector, where exports fell by 16 percent from the year-earlier pace.  Industrial machinery, which excludes computers under the new North American Industry Classification System (NAICS), was also down by 6 percent.  In contrast, both agriculture and food products and chemicals rose 17 percent. 
     
•  Exports to eight of the leading ten countries declined, led by a 34 percent drop in South Korea, which was the fastest growing California market in 2000.  Exports to Mainland China surged 38 percent and shipments to the UK rose 3 percent.

Exports Slow from 2000

Preliminary General Fund agency cash for August was $316 million below the 2001 Budget Act forecast of $4.826 billion.  Year-to-date, revenues are $142 million below expectations.

• Personal income tax revenues were $185 million below the month’s forecast of $2.388 billion.  Withholding receipts, which were 11.2 percent below the year-ago level, were $189 million below the month’s estimate of $2.226 billion.  Other receipts were $15 million above the projected level of $313 million and refunds were $11 million above the estimate of $151 million.
  

• Sales and use tax receipts were $4 million below the month’s forecast of $2.017 billion.  August cash includes the remaining portion of the final payment for second quarter sales, as well as the first prepayment for third quarter sales.  It appears that final payment receipts were somewhat lower than expected, which was offset by a slight gain in the prepayment.  For July and August combined, the sales tax is $64 million above expectations.
  

• Bank and corporation tax revenues were $79 million below the month’s forecast of $130 million.  Prepayments were $12 million below the forecast of $85 million and miscellaneous payments were $43 million lower than the $129 million that was expected.  Refunds exceeded the forecast of $84 million by $24 million.  September will be a significant month for this tax because the third estimated payment for calendar year corporations is due September 15.
  

• Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes came in $18 million below the $122 million that was expected.  The remaining revenues—pooled money interest income and “other” revenues—were $30 million below the month’s estimate of $169 million.

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.

Return to the Department of Finance Home Page