September 2001 ECONOMIC UPDATE More signs of economic weakness were evident in recent construction and export activity. Construction activity slowed again in July, principally in the San Francisco Bay area. Exports of California-made goods grew modestly in the first quarter, then declined from year- ago levels in the second quarter. After June’s mixed results, California construction slowed across the board in July, with both residential and nonresidential permit volumes down from month-ago and year-ago levels. Residential construction, measured in housing units, dropped 5.7 percent from June and over 6 percent from July 2000. July’s seasonally adjusted annual rate of 125.2 thousand units was the slowest monthly rate in three years. Before July’s lackluster performance, residential construction in 2001 was running comfortably ahead of 2000. Through the first seven months of 2001, however, residential construction is besting the same period in 2000 by only 0.7 percent. Dramatic reductions in the San Francisco Bay area are the principal source of the construction slowdown. Total residential permits year-to-date in San Francisco, San Mateo, and Santa Clara counties have dropped 42.6, 36.9, and 14.2 percent respectively from the same period in 2000. Outside of this region, home building has actually risen 3.8 percent so far this year. Nonresidential construction was also slow in July, down 34 percent from June and 22 percent from July 2000, as measured by building permit values. Significant year-over-year drops occurred in all building categories except the small service station sector. Despite the July weakness, total nonresidential construction during the first seven months of 2001 is essentially unchanged from the year-ago level. California’s real estate market continued to show mixed results in July. The median single-family home price was essentially unchanged from June, but sales volume dropped 4.5 percent. On a year-over-year basis both prices and sales were up from July 2000. Given the drop in sales, the inventory index of single family homes for sale climbed to 3.9 months from June’s 3.6 months. The index—the number of months needed to exhaust the supply of homes on the market at the current sales rate—stood at 3.2 months a year ago. The slowdown in home sales remains concentrated in the San Francisco Bay area. Sales in Santa Clara County—the Silicon Valley—fell 22 percent from a year ago and notably the median home price actually declined in July by 3.4 percent. In contrast, strong home sales and price gains continue in Southern California. International economic weakness is now noticeably affecting California exports. Shipments of California-made goods to other countries in the second quarter of 2001 fell 6.6 percent below the comparable 2000 figure. For the Exports Slow from 2000 first half of the year, California exports were still up Made-In-California Exports 2.9 percent, a gain well below last year’s 20.7 Percent Change, Second Quarter percent jump. -30% -20% -10% 0% 10% 20% 30% 40% 50% 60% Second quarter weakness was confined mostly to 24% the computers and electronics sector, where Japan -2% exports fell by 16 percent from the year-earlier 47% East Asia pace. Industrial machinery, which excludes -14% computers under the new North American Industry Southeast Asia 26% -5% Classification System (NAICS), was also down by 1999-2000 12% 6 percent. In contrast, both agriculture and food Canada -8% 2000-2001 products and chemicals rose 17 percent. Mexico 34% -3% Exports to eight of the leading ten countries 23% Europe declined, led by a 34 percent drop in South Korea, -8% which was the fastest growing California market in Americas 3% 5% 2000. Exports to Mainland China surged 38 percent and shipments to the UK rose 3 percent. Other -20% 4% Monthly Cash Report Preliminary General Fund agency cash for August was $316 million below the 2001 Budget Act forecast of $4.826 billion. Year-to-date, revenues are $142 million below expectations. Personal income tax revenues were $185 million below the month’s forecast of $2.388 billion. Withholding receipts, which were 11.2 percent below the year-ago level, were $189 million below the month’s estimate of $2.226 billion. Other receipts were $15 million above the projected level of $313 million and refunds were $11 million above the estimate of $151 million. Sales and use tax receipts were $4 million below the month’s forecast of $2.017 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 somewhat lower than expected, which was offset by a slight gain in the prepayment. For July and August combined, the sales tax is $64 million above Ge n e r al Fun d Ag e n cy Cash expectations. 2 0 0 1 Bud g e t Act For e cast Bank and corporation tax revenues were $79 million (Dollar s in Billion s) 16.000 below the month’s forecast of $130 million. Actual Forecast Prepayments were $12 million below the forecast of 14.000 $85 million and miscellaneous payments were $43 million lower than the $129 million that was 12.000 expected. Refunds exceeded the forecast of $84 10.000 million by $24 million. September will be a significant month for this tax because the third 8.000 estimated payment for calendar year corporations is due September 15. 6.000 Revenues from the insurance, estate, alcoholic 4.000 beverage, and tobacco taxes came in $18 million below the $122 million that was expected. The 2.000 remaining revenues—pooled money interest income 0.000 and “other” revenues—were $30 million below the July Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun month’s estimate of $169 million. 2001-02 Comparison of Actual and 2001 Budget Act Forecast Agency General Fund Revenues (Dollars in Millions) August | YEAR-TO-DATE Percent | Percent Revenue Source Forecast Actual Change Change | Forecast Actual Change Change | Personal Income $2,388 $2,203 -$185 -7.7% | $4,372 $4,296 -$76 -1.7% Sales & Use 2,017 2,013 -4 -0.2% | 3,331 3,395 64 1.9% Bank & Corporation 130 51 -79 -60.8% | 344 198 -146 -42.4% Insurance 8 20 12 150.0% | 15 25 10 66.7% Estate 79 48 -31 -39.2% | 158 133 -25 -15.8% | Pooled Money Interest 33 48 15 45.5% | 72 102 30 41.7% Alcoholic Beverages 24 25 1 4.2% | 51 51 0 0.0% Tobacco 11 11 0 0.0% | 22 22 0 0.0% Other 136 91 -45 -33.1% | 127 128 1 0.8% | Total $4,826 $4,510 -$316 -6.5% | $8,492 $8,350 -$142 -1.7% This is an agency cash report and the data may differ from the Controller's report to the extent that cash received by agencies has not yet been reported to the Controller. Except for "other" revenues, revenues are ranked in descending order of fiscal year magnitude. Totals may not add due to rounding. The forecast is from the May Revision, updated for the 2001 Budget Act.
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