Economic Update

California did not fully share in the strong job growth the nation recorded in March. Nonfarm payroll employment rose by 5,200 for the month, which is surprisingly low considering the nation as a whole gained 308,000 jobs. The resolution of the Southern California grocery strike appears to have had little impact on overall industry employment, as the March 2004 gain in grocery store employment was comparable to past years.
From February to March six major industry sectors added jobs while five lost: Trade, Transportation and Utilities added 11,900 jobs; Financial Activities, 2,700; Educational and Health Services, 1,000; Other Services, 900; Construction, 500; and Natural Resources and Mining, 500. Government lost 6,000 jobs; Information, 2,500; Manufacturing, 2,000; Professional and Business Services, 1,300; Leisure and Hospitality, 500.
On a year-over-year basis, California nonfarm employment rose by 55,500 in March, or 0.4 percent. Employment rose by 48,700 in Professional and Business Services, 37,800 in Educational and Health Services, 28,100 in Trade, Transportation and Utilities, 25,400 in Construction, 19,700 in Financial Activities, and 14,500 in Leisure and Hospitality. Over the year, employment fell by 56,900 in Government, 39,600 in Manufacturing, 16,800 in Information, 4,400 in Other Services, and 1,000 in Natural Resources and Mining.
California's unemployment rate jumped to 6.5 percent in March from a revised 6.3 percent in February (initially reported as 6.2 percent). This increase appears to correct for a questionable 0.3-percent point drop in January (due to a suspiciously large 133,000 jump in civilian employment). In March, employment dropped by 79,000 and the unemployment rate returned to its December 2003 level. The national unemployment rate was 5.7 percent in March. A year ago, unemployment was 6.8 percent in California.
Homebuilding strengthened in February as multi-family construction nearly doubled. Total residential construction, as measured by permit issuances, reached a seasonally adjusted annual rate of 204,000 units in February, a 4.7-percent increase from January. A drop in single-family construction was more than made up for by a boost in multifamily construction, to 63,000 units from January's 32,000 units.
Nonresidential construction also expanded in February-by 2.3 percent as measured by the seasonally adjusted value of permits issued. This did not, however, make up for January's slowdown. Expanding office construction made a large contribution to February's gain in addition to store and amusement/recreation building.
Existing single-family home sales weakened in February, possibly the result of falling affordability. Home sales in February totaled 589,220 units on a seasonally adjusted-annual basis, a 4.3-percent drop from January. Still, sales were 3.9 percent stronger than a year ago.
In line with weakened sales, home prices also interrupted their upward spiral in February. The median price of existing single-family homes sold in February slipped to $394,300, a 2.9-percent retreat from January. This price is, however, nearly 21 percent above the February 2003 median.

Monthly Cash Report

Preliminary General Fund agency cash for March was $406 million above the 2004-05 Governor's Budget forecast of $4.646 billion. Year-to-date, revenues are $217 million lower than the $51.942 billion that was expected.

Personal income tax revenues were $314 million above the month's forecast of $1.038 billion. Withholding was $164 million above the estimate of $2.214 billion, or 14.4 percent above the year-ago level. On a year-to-date basis, however, withholding receipts are up 7.9 percent and receipts are $38 million above the forecast. Other payments in March were $93 million above the $461 million that was expected and refunds were $57 million below the projected level of $1.637 billion. April receipts will be critical for this tax as final returns for the 2003 tax year are filed. Year?to?date, personal income tax revenues are $79 million below the forecast.
Sales and use tax receipts were $323 million above the month's forecast of $1.751 billion. Most of the gain is attributable to a final positive adjustment for third quarter 2003 sales. March represents the second prepayment for first quarter sales and use tax liabilities. This prepayment came in slightly above forecast. Year-to-date, sales and use tax revenues are $193 million higher than expected.
Corporation tax revenues were $302 million below the month's forecast of $1.408 billion. March is a significant month for this revenue because the final payments for 2003 calendar?year corporations were due. Prepayments and other payments were $14 million and $298 million below the estimates of $388 million and $1.102 billion, respectively. Refunds were $10 million below the forecast of $82 million. April will be another important month for this tax since the first prepayment for 2004 calendar-year corporations is due mid-month. Year-to-date, corporation tax revenues are $244 million below the forecast.
Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes came in $67 million above the $350 million that was expected due to higher-than-expected insurance tax receipts.
The remaining revenues—pooled money interest income and "other" revenues—were $4 million above the month's estimate of $99 million.

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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