Economic Update

The latest available economic data for California do not reflect conditions after the September 11, 2001 attacks. Thus, their usefulness for discerning the state’s current economic condition is limited. Although too little time has elapsed to accurately appraise the attacks’ impact on the state generally, it is reasonable to assume that the indicators discussed below may paint a more optimistic picture than exists now. However, while the full impact of the September 11 attacks and subsequent events is only now beginning to emerge, there are reasons to believe that California will be less severely affected than the nation as a whole.

Likewise, labor market figures for September reflect employment status at anytime during the second week of the month, including September 10, the day preceding the attacks.

Nonfarm employment, based on a survey of establishments, declined 17,400 in September. Industry estimates for September indicate a decline in construction employment, weakness in nearly all manufacturing sectors, gains in private service employment, and an anomalous drop in government employment. Overall, nonfarm employment is up over the year and California has created more jobs than the nation, 147,800 versus 120,000.
Manufacturing employment dropped 10,100 in September. California’s high-tech specialties—computers, electronics, aerospace, and instruments—accounted for over 60 percent of the losses. Only textile mill employment rose in September.
Service sector employment rose 6,500 in September based on gains in motion pictures (3,800 jobs), social services (3,000 jobs), and engineering and management consulting (1,700 jobs). These gains more than offset the fifth consecutive monthly decline in business service employment, which lost 3,000 jobs.
Government employment, which has been the job growth leader for the last several months, fell by 13,300 jobs in September. This loss, however, was largely the result of a seasonal adjustment anomaly which turned a lower-than-typical 80,000 gain in public school employment into a month-over-month loss. The seasonal adjustment problem reflects the spread of year-around schools and year-to-year differences in starting dates in schools using the more traditional calendars. Both federal and state employment (seasonally adjusted) grew in September.
On a year-over-year basis, services added the most jobs, 66,100, followed closely by government, 61,100 and more distantly by wholesale and retail trade, 47,200. Manufacturing lost 63,000 jobs over the year, with losses in nearly all sectors. High tech manufacturing has been notably hard hit.
California's unemployment rate, based on a survey of households, inched up 0.1 percent to 5.4 percent in September based on a 7,000 rise in the number of people unemployed. A year ago, the unemployment rate was 4.9 percent. The national unemployment rate, at 4.9 percent, is up a full percentage point over the year.
Construction activity recovered somewhat in August, but was still weaker than at this time last year. Residential construction, measured by permitted units, grew 11.0 percent from July’s weak performance but was still down 2.1 percent from August 2000. August’s seasonally adjusted annual rate of 140.2 thousand permitted units boosted the year-to-date total for 2001 to 1.1 percent above the same period of 2000. The San Francisco Bay Area continues to be the principal source of the residential construction slowdown.
Nonresidential construction followed a similar pattern in August, rising by 36.6 percent over the month but down 12.5 percent from a year ago. Office building construction registered the strongest month-to-month gain but from an abnormally weak performance in July. Total nonresidential construction during the first eight months of 2001 was down 2.0 percent from the same months of 2000.
California’s real estate market made a better showing in August than the preceding month, with modest increases in both sales and prices. The median single-family home price rose to $276,590, a 3.5 percent increase from July and 8.6 percent above the August 2000 median. The sales of existing single-family homes also rose in August with 571,070 units changing hands.

Monthly Cash Report

Preliminary General Fund agency cash for September was $468 million below the 2001 Budget Act forecast of $7.451 billion. At this time, it does not appear that any significant amount of this month’s shortfall was attributable to the September 11 terrorist attacks. If a reduction in taxable sales occurred as a result of those attacks, it will be reflected in the sales tax receipts due at the end of October. Any other effects on revenues, due to such things as the fall in the stock market or employment losses, may not be apparent for some time. Year-to-date, revenues are $608 million below expectations.

Personal income tax revenues were $415 million below the month’s forecast of $4.073 billion. The bulk of the shortfall was attributable to quarterly estimated payments, which were $266 million lower than the forecast of $2.120 billion—a 17.8 percent decline from the year-ago level. Withholding receipts, however, also fell short of expectations, being $142 million below the projected level of $1.925 billion for a 10.2 percent year-over-year decline. Other receipts were $3 million below the estimated $137 million and refunds were $4 million greater than the expected level of $109 million. For July through September, this tax is $489 million under forecast.
Sales and use tax receipts were $46 million below the month’s forecast of $1.635 billion. September represents the second prepayment for third quarter taxable sales. Final payments for this quarter will be received in late October and early November, providing a more complete picture of third quarter activity. So far this year, the sales tax is $18 million above expectations.
Bank and corporation tax revenues were $158 million below the month’s forecast of $1.246 billion. The third prepayment for calendar year corporations, which was due in September, was $176 million below the forecast of $1.122 billion and miscellaneous payments were $10 million higher than the $185 million that was expected. Refunds were $8 million less than the forecast of $61 million. Year-to-date, this tax is down $304 million from forecast.
Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes came in $15 million below the $451 million that was expected. The remaining revenues—pooled money interest income and “other” revenues—were $166 million above the month’s estimate of $46 million due to a gain in “other” revenues, which is primarily attributable to cash flow between fiscal years. As noted in the July 2001 Finance Bulletin, the forecast for June 2001 had anticipated the receipt of $160 million from the sale of Agnews but this payment did not materialize. However, $118 million was received in September from the sale.

General Fund Agency Cash
2001-02 Budget Act Forecast

2001-02 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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