Economic Update

As with the nation, California's employment picture didn't improve much at the end of 2003. However, for both the state and the nation, the employment situation is at odds with other economic indicators.

California ended 2003 with disappointing employment news. After being artificially boosted by hiring done in anticipation of the walkout of Southern California grocery workers in October, industry employment declined 20,200 in November and by another 8,400 in December.
Weaker-than-normal holiday hiring was the chief cause of December's losses rather than the grocery worker walkout. This led to a seasonally adjusted loss of 13,300 jobs in the Trade, Transportation and Utilities sector. The below-average holiday hiring will, hopefully, translate into below-average layoffs in January 2004, which could result in a seasonally adjusted gain.
Outside of this sector, performance was mixed, yielding a net improvement of 4,700 jobs. The Information sector added more than 4,000 jobs for its second consecutive month. Construction was the next strongest sector, adding 3,100 jobs-its fourth consecutive monthly gain. The Health and Education Sector added 2,500 jobs and Finance added 1,100. Professional and Business Services continued a pattern of alternating monthly gains and losses with a 200-job gain in December that followed a decline of 5,000 in November. Government employment was unchanged.
Industry losses outside of Trade, Transportation and Utilities were modest. Other Services employment fell by 2,700; Leisure, 2,300; Manufacturing, 900; and Resources and Mining, 600.
On a year-over-year basis, California nonfarm employment fell by 32,500, or 0.2 percent. Growth was led by Educational and Health Services, which added 26,700 jobs. Leisure and Hospitality gained 22,800; Construction, 15,800; Trade, Transportation and Utilities, 7,500; Financial Activities, 6,400. Government was the largest source of job losses, dropping 49,700 over the year. Reduced public school employment accounted for the lion's share of these losses. Manufacturing employment dropped by 34,000; Professional and Business Services, 19,300; Information Services, 4,300; and Other Services, 4,100.
On a more optimistic note, California's unemployment rate dipped to 6.4 percent from November's 6.5 percent. This is a half percentage point lower than the 6.9-percent rate when the state ended 2003. The improvement in December resulted from a household employment gain of 38,900 and a drop in unemployment of 30,300.
Residential construction ended 2003 on a strong note, with building permits issued at a seasonally adjusted annual rate of 192,000 units in December. This is a 4-percent increase from November and a substantial 26-percent gain over December 2002. In fact, home building during the last quarter of 2003 nearly matched the phenomenal pace with which it started the year.
Commercial construction, on the other hand, ended 2003 on a weak note. In December, nonresidential construction improved from November, but was still nearly 12 percent below December 2002. Nonresidential construction activity, as measured by the value of permits issued during all of 2003, was off 4.6 percent from 2002.
Existing single-family home sales barely skipped a beat in November, still besting last year by a healthy margin. Still benefiting from low home mortgage interest rates, the pace of existing home sales reached 627,190 units at a seasonally adjusted-annual rate, a 15.7-percent rise from a year ago.
Not surprisingly, home prices continued to rise in November. The median price of existing single-family homes sold in November reached $386,760, a 1.7-percent improvement from October and a nearly 18-percent increase over November 2002. Home price appreciation is being led by Southern California, notably by the Los Angeles, Riverside/San Bernardino, and San Diego regions.

Industry Gains and Losses

Monthly Cash Report

Preliminary General Fund agency cash for January was $626 million below the 2004-05 Governor's Budget forecast of $7.862 billion. The variance between January and year-to-date cash results from differences between actual and estimated December revenues.

Personal income tax revenues were $70 million below the month's forecast of $5.230 billion. Although withholding receipts came in $189 million below the forecast of $3.069 billion, the month's total was 4 percent above the year-ago level. January's estimated payments were up 7.2 percent on a year-over-year basis and were $144 million above the forecast of $2.115 billion. Even though the fourth quarter estimated payment for the 2003 tax year is not due until January 15, 2004, 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 $69 million below the forecast of $3.268 billion. January's other receipts were $43 million above the projected level of $184 million, and refunds were $68 million higher than the forecast of $138 million. Year-to-date net cash receipts for this revenue source are $252 million below estimate.
Sales and use tax receipts were $457 million below the month's forecast of $2.155 billion. January cash represents the final payment for fourth quarter 2003 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, we expect most of January's shortfall to be received in February. Year-to-date sales tax cash is $557 million below estimate.
Corporation tax revenues were $71 million above the month's forecast of $119 million. Prepayments were $14 million below the estimate of $204 million and other payments were $41 million below the $126 million estimate. The shortfall from these two receipt categories was more than offset by lower-than-expected refunds, which were $126 million lower than the projected level of $211 million. Year-to-date corporation tax receipts are $59 million above estimate.
Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes came in $5 million above the $88 million that was expected. The remaining revenues-pooled money interest income and "other" revenues-were $175 million below the month's estimate of $270 million, due to lower-than-expected "other" revenues. This shortfall appears to be due to cashflow.

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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