March 2004

Economic Update

• California's nonfarm payroll employment estimates released in February incorporate the yearly benchmark revision process. The relatively small revision reduced the 2003 employment estimate by 43,500. More significantly, the downward revisions predominantly affected the first half of the year, but left the year-end employment level essentially unchanged. Thus, the revised numbers paint a more encouraging picture of an upward employment trend leading into 2004. The original estimates showed employment falling by 3,500 per month on average during the second half of 2003, while the revised numbers indicate an average monthly gain of 4,600.
  
  
• Although the timing of the annual revisions sometimes cloud the accuracy of the January industry employment estimates, 2003 started off on a positive note with the addition of 22,200 nonfarm payroll jobs. The December-to-January gains were led by the Construction and Leisure sectors, which each added 7,900 jobs. The Trade, Transportation, and Utilities sector added 5,700 jobs; Education and Health Services, 4,600; Information, 2,000; Professional and Business Services, 1,600; Other Services, 1,400; and Government, 700 jobs. Another positive note is that only three major industries lost jobs in January. Resources and Mining lost 1,000 jobs; Manufacturing, 2,900; and Financial Activity, 5,700.
  
  
• On a year-over-year basis, California nonfarm employment rose by a scant 8,800 in January. This is, however, the first year-over-year gain since December 2002. Employment expanded by 41,100 in Educational and Health Services; 36,200 in Professional and Business Services; 25,000 in Financial Activity; 22,300 in Construction; 11,700 in Leisure and Hospitality; 11,200 in Trade, Transportation and Utilities. Industry employment fell by 61,500 in Manufacturing; 59,000 in Government; 13,100 in Information; 3,100 in Other Services; and 2000 in Resources and Mining.
  
  
• There was mixed news for California's unemployment rate in January, which dropped to 6.1 percent from a revised 6.5 percent in December 2003 (initially reported as 6.4 percent). The seasonal adjustment factors used to make January estimates are larger than those for other months, which means the January results are less precise. In January, civilian employment rose by a questionably large 132,000. It is very unlikely that actually was the case, since monthly employment gains averaged only 6,500 throughout 2002 and 2003. This gain is also out of proportion with the nonfarm employment gains noted above. Thus, it is unlikely that unemployment was as low as 6.1 percent in January.
  
  
• Persistently low home mortgage interest rates and a limited supply of homes offered for sale are driving a strong real estate market in California. Even though the pace of existing home sales slowed slightly in January 2004 to 615,660 units at a seasonally adjusted-annual rate, it was still over 5 percent faster than during January 2003.
  
  
• Not surprisingly, home prices continued their ascent in January. The median price of existing single-family homes sold in January reached $405,720, a nearly 21-percent increase from January 2003 and the second consecutive month the median exceeded $400,000.

Industry Gains and Losses

Preliminary General Fund agency cash for February was $252 million above the 2004-05 Governor's Budget forecast of $3.836 billion. Year-to-date, revenues are $623 million lower than the $47.296 billion that was expected.

• Personal income tax revenues were $143 million below the month's forecast of $1.283 billion. The shortfall was due to higher-than-expected refunds. Refunds were $280 million above the projected level of $1.136 billion, but since February is only the first of several significant months for 2003 tax year refunds, it is not clear how much of this month's increase may be due to cash flow. Withholding was $71 million above the estimate of $2.168 billion and other payments were $66 million above the $251 million that was expected. Year-to-date, personal income tax revenues are $393 million below the forecast.
  
  
• Sales and use tax receipts were $427 million above the month's forecast of $2.147 billion. February cash includes the remaining portion of the final payment for fourth quarter 2003 sales, which was due January 31. In addition, the first prepayment for first quarter 2004 sales was due in February. Most of the sales tax loss in January was made up in February. However, preliminary information indicates fourth quarter sales were slightly below forecast. First quarter receipts appear to be tracking. Year-to-date, sales tax revenues are $130 million below the forecast.
  
  
• Corporation tax revenues were $1 million below the month's forecast of $172 million. Prepayments were $47 million below the estimate of $89 million and other payments were $41 million above the forecast of $118 million. Refunds were $5 million below the projected level of $82 million. Year-to-date, corporation tax revenues are $58 million above the forecast. February is not a significant month for this tax. March, however, is a critical collection month and will provide a more meaningful measure since final payments for calendar year corporations are due by mid-month.
  
  
• Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes came in $4 million below the $87 million that was expected. The remaining revenues-pooled money interest income and "other" revenues-were $27 million below the month's estimate of $147 million, primarily due to lower-than-anticipated "other" revenues.

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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