December 16, 2009

Mixed Message on State Economy

Both the State Controller and the Department of Finance (DOF) December Reports indicate continuing evidence that the California economy has bottomed; it may even be starting a very slow rebound.  The bottom was lower than previously hoped for; but not as low as some of the scarier estimates made in July and August.  

The following are excerpts from the Department of Finance December Finance Bulletin:

“Despite an uptick in California’s unemployment rate, October’s labor market news was encouraging. Private nonfarm payroll employment increased for the first time in about a year and a half and the gains were relatively broad-based. In the same vein, there were more indications that California’s real estate and construction industries may have bottomed out.

• California gained 25,700 nonfarm jobs in October 2009. This was the first month-over-month increase after 17 consecutive monthly losses.
• The good news, though, came with a caveat. More than half of October’s estimated job gains came in government, where earlier school year starts and budget-related layoffs have made estimates of educational employment and, in turn, government and total nonfarm payroll employment, more volatile in recent months. October’s gain in government employment, 13,400, was preceded by a 41,900 loss in September, for instance. Thus, some of those government job gains could be revised away in the report on labor market conditions in November, which will be released on December 18.
• The best employment news came from the private sector, where jobs increased by 12,300 across five of the ten major industry sectors. Job gains were notably more widespread than in previous months. Only three industries added jobs in September, two in August, one in July, and none in May and June. In October, professional and business services added 12,900 jobs; educational and health services, 12,900; leisure and hospitality, 4,600; financial activities, 2,600; and information, 2,200.”

Monthly Cash Report

The good news is that the bad news is getting less bad, but state revenues are continuing to be below expectations. “Preliminary General Fund agency cash for November was $4.9 billion, or $439 million below the Amended 2009 Budget Act forecast, which includes the unallocated revenue adjustment. On the same adjusted basis, year-to-date revenues are $1.035 billion below the expected $30.414 billion.“ 

Because of how the DOF allocated an anticipated $3 billion revenue loss, the $1 billion additional loss indicated in this report might not actually occur.  The $3 billion was scheduled over a 12-month period.  If most of the loss occurs while the economy is still declining, and if the California economy has bottomed and started a slow growth, then it is possible that the $1 billion indicated in this report will be reduced during the next six months. 

~Dave Walrath