Economic Update

Positive employment news in recent months indicates that California's economic recovery is now broad-based and sustainable. Improved job growth has joined healthy commercial and residential construction, strong real estate markets, and rebounding exports to create a full-fledged recovery.

Nonfarm payroll employment rose 12,300 in June. (May's gain was revised up considerably, from 23,600 jobs to 33,200 jobs.) The job gains in June, as in the past several months, were widespread across major industry sectors. For the first time in several months, California accounted for its share of the nation's job growth.
Educational and Health Services added 5,600 jobs; Trade, Transportation and Utilities, 5,400; Leisure and Hospitality, 4,800; Construction, 2,300; Financial Activities, 2,000; Other Services, 1,600; Government, 1,400; Manufacturing, 400; and Natural Resources and Mining, 200. Albeit small, this is the third consecutive month-over-month gain for Manufacturing.
Information, which was the leading job-growth sector in May, was the loss leader in June. Employment in this sector, which includes publishing, motion picture and sound recording, broadcasting, telecommunication, and internet services, fell by 9,000, which essentially negates its 9,400-job gain in May. Losses in the motion picture and sound industries accounted for all of June's losses.
From June 2003 to June 2004, employment rose by 63,300 in Professional and Business Services; 38,800 in Trade, Transportation and Utilities; 32,000 in Educational and Health Services; 28,000 in Construction; 22,000 in Leisure and Hospitality; 11,300 in Financial Activities; 1,100 in Other Services; and 400 in Natural Resources and Mining. Employment over the year fell by 44,300 in Government; 11,500 in Manufacturing; and 6,900 in Information.
The state's unemployment rate dropped to 6.2 percent in June, down from 6.8 percent in June 2003. The number of unemployed persons fell by 5,000 in June. The labor force grew modestly by 20,000, while civilian employment expanded by 25,000.
Homebuilding moderated in May but still sustained a very healthy pace. Total residential construction, as measured by permit issuances, reached a seasonally adjusted annual rate of 194,000 units, 7.8 percent below the May 2003 pace. During the first five months of 2004, total residential construction is essentially equal to the same months of 2003.
Nonresidential construction slowed in May, with a 2.4-percent year-over-year drop as measured by the seasonally adjusted value of permits issued. During the first five months of 2004, the pace of nonresidential construction is 6.4 percent ahead of the same months of 2003.
Sales of existing single-family homes maintained a healthy rate in May. The specter of rising mortgage rates may be prompting many buyers to accelerate purchases. Overall, home sales during the first five months of 2004 are 6.7 percent better than the same months of 2003. Home sales from January through May averaged 613,638 units on a seasonally adjusted-annual rate basis.
Strong home sales in May, along with lean inventories, sent home prices up at a record pace. The median price of existing single-family homes sold in May reached $465,160, more than 26 percent above the May 2003 median.
A surge in made-in-California exports is a major feature of the state's recent strength and a good omen for the future. During the first quarter of 2004, exports of California-manufactured goods increased a tremendous 25 percent from the first quarter of 2003-nearly double the growth in the nation's exports as a whole.

California Exports Surge

Monthly Cash Report

Preliminary General Fund agency cash for June was $373 million above the 2004-05 May Revision forecast of $8.105 billion. Year-to-date revenues are $59 million higher than the $75.619 billion that was expected. These figures do not reflect final, accrued 2003-04 revenues, but simply agency cash through June. Accrued revenues will not be known until this Fall, at which time a true picture of 2003-04 actual revenues will be available..

Personal income tax revenues were $105 million above the month's forecast of $3.826 billion. Withholding was $87 million below the month's estimate of $2.203 billion but was still a respectable 9.8 percent above the year-ago level. The second quarterly estimated payment for the 2004 tax year came in $126 million above the projected level of $1.488 billion or 18.3 percent over June 2003-an encouraging sign. Other receipts were $79 million above the $298 million estimate and refunds were $13 million above the $163 million that was expected. Year-to-date personal income tax receipts are $27 million above the May Revision forecast.
Sales and use tax receipts were $156 million above the month's forecast of $2.285 billion. June represents the second prepayment for second quarter sales. A more complete picture of second quarter sales will be available in mid-August, when all of the second quarter receipts have been processed. Prior months have been revised downward, thus year-to-date, sales tax receipts are $45 million more than anticipated.
Corporation tax revenues were $112 million above the month's estimate of $1.388 billion. June receipts primarily reflect the second prepayment for calendar year corporations, which were $25 million below the forecast of $1.294 billion. This was offset by other payments, which were $76 million above the forecast of $209 million and refunds, which were $61 million less than the projected level of $115 million. Cumulatively through June, corporation tax revenues are $45 million above expectations.
Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes came in $6 million above the $453 million that was expected. The remaining revenues-pooled money interest income and "other" revenues-were $6 million below the month's estimate of $153 million.
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General Fund Agency Cash
2004-05 May Revision 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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