September 2004

Economic Update

The end of summer brought mixed news for California. The unemployment rate dropped precipitously in August, but job growth was not as dramatic. Building activity slowed during July and August but still maintained a commendable lead over last year's pace. Meanwhile, strong home sales continued and home prices are much higher than at this time last year.

• Nonfarm payroll employment rose by 3,100 in August. (July's loss was also revised down to a loss of 9,300 from the 17,300 originally reported). Six of 11 major industry sectors gained jobs last month. Information added 5,400 jobs; Construction, 3,700; Professional and Business Services, 2,900; Financial Activities, 2,700; Leisure and Hospitality, 800; and Other Services, 500. Job gains in Motion Picture and Sound Recording prompted the Information sector gains and reversed two months of losses.
  
• Among the losing industries, Government lost 4,300 jobs; Educational and Health Services, 3,700 jobs; Manufacturing, 3,400; Trade Transportation and Utilities, 1,200; and Natural Resources and Mining, 300. This is the first loss in Manufacturing since March. Despite the loss in Manufacturing as a whole, Computer and Electronics Manufacturing-a California specialty-turned in its first year-over-year gain since May 2001.
  
• The state's unemployment rate made a substantial 0.4-percentage point drop, falling to 5.8 percent from a revised 6.2 percent in July. (A year ago, the state's unemployment rate was 6.8 percent.) This large drop was principally due to an unusually large fall in the number of unemployed-76,000 fewer than in July. Household survey estimates of employment and unemployment have been notably volatile this year. The large August drop in unemployment may have been caused by some earlier-than-usual start of public school and college academic years.


• Home building moderated in July to its slowest pace yet this year. Based on reductions in both single and multi-family construction, total residential construction authorized by permits fell nearly 12 percent from a very strong pace in June. Permit issuances fell to 194,000 units from June's 220,000-unit rate on a seasonally adjusted annual rate basis.
• An unusual amount of volatility has shown up in California home building in 2004. While permits issued for new home construction during the first seven months of 2004 are up 3.0 percent from the same months of last year, it has followed a seesaw pattern on a month-to-month basis. Three of the seven months saw reduced activity from the month before-two by double-digit percentages. There were only four such month-to-month drops during all of 2003.
• Nonresidential building also slowed in July from an exceptionally strong pace in June, so it was still a commendable level of activity. June was the strongest building pace recorded since August 2001. Total nonresidential construction in July maintained a seasonally adjusted-annual rate of $16.2 billion, as measured by the value of permits issued. The slowdown was broad-based, just as June's boom was on the positive side.
• The strong home buying pace that first surged in mid-2003 continued into July. Sales of existing single-family homes totaled 639,910 units on a seasonally adjusted-annual rate basis, a full 1.0 percent improvement on the June pace and 7.4 percent greater than one year ago.
• Despite improved sales, home prices took a breather in July. The median price of existing single-family homes sold in July fell 1.1 percent from the month before to $463,540. This price is, however, over 21 percent higher than the July 2003 median.

Unemployment Drops in August

PrePreliminary General Fund agency cash for August was $122 million above the 2004 Budget Act forecast of $5.333 billion. Year-to-date, revenues are $232 million above expectations. September will be a significant month for both the personal income and corporation taxes because the third estimated payment for calendar year filers will be due in mid-September.

• Personal income tax revenues were $24 million above the month's forecast of $2.448 billion. Withholding receipts, which came in $24 million above the month's estimate of $2.155 billion, were 9.8 percent above the prior-year level. Other receipts were $65 million above the projected level of $413 million and refunds were $65 million more than the estimate of $120 million. Year-to-date, personal income tax revenues are $32 million above expectations.
  
• Sales and use tax receipts were $16 million below the month's forecast of $2.559 billion. August cash includes the remaining portion of the final payment for second quarter sales, as well as the first prepayment for third quarter sales. It appears that final payment receipts were close to expectations, while the first prepayment receipts were below forecast. Year-to-date, the sales tax cash is $8 million below expectations.
  
• Corporation tax revenues were $51 million above the month's forecast of $139 million. Prepayments were $7 million below the forecast of $114 million and miscellaneous payments were $14 million less than the $152 million that was expected. Refunds were $72 million less than the forecast of $127 million. Year-to-date, corporation tax receipts are $111 million above estimate.
• Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes came in $9 million below the $109 million that was expected. The remaining revenues-pooled money interest income and "other" revenues-were $72 million above the month's estimate of $78 million, primarily due to higher-than-expected "other" revenues.
  

General Fund Agency Cash
 2004-05 Budget Act Forecast

 2004-05 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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