By @Ophelia Szigeti
The California Department of Finance recently unveiled its Finance Bulletin for the month of August, shedding light on key economic indicators and fiscal developments. Among the highlights, the report underscores the state’s fiscal landscape, inflation trends, employment figures, and tax receipts for the first month of the 2023-2024 Fiscal Year.
The Finance Bulletin begins by examining the preliminary Fund cash receipts for July. Unfortunately, the receipts fell short of expectations, coming in at $1.268 billion below the projected $9.748 billion outlined in the 2023-2024 Budget Act forecast. A notable factor in this fiscal setback was the sales tax receipts, which were $453 million below the forecasted amount. These lower-than-expected cash receipts were somewhat mitigated by the shift of over $650 million in higher-than anticipated receipts from July to August. This shift was due to processing delays of end-of-the-month transactions, which more than offset the initially reported shortfall.
A key contributor to the July deficit was personal income withholding, which accounted for $404 million of the overall shortfall. However, this was also influenced by timing issues. The July deficit overshadowed the strong year-over-year withholding growth of 12.4 percent observed in June. Additionally, corporate tax receipts experienced a decline, falling short by $412 million compared to the forecasted $884 million for July.
The bulletin also examined the U.S. year-over-year headline inflation rate. This metric rose from three percent in June to 3.2 percent in July, marking the first increase in over a year. Gasoline prices emerged as a pivotal factor in this uptick, with a modest rise in gas prices during July contributing to the overall headline rate. Core inflation, which excludes volatile elements like food and energy, saw a slight deceleration, going from 4.8 percent year-over-year in June to 4.7 percent in July. It’s worth noting that, as of June 2023, California’s headline inflation rate was recorded at 3.1 percent year-on-year.
The state’s unemployment rate remained steady at 4.6 percent in July 2023. Notably, the unemployment count decreased by 4,700 individuals, with 21,700 people exiting the labor force. This departure contrasts with the positive trends observed in the first half of 2023, which saw average monthly gains of 12,000 and 29,000 in employment and labor force participation, respectively.
July also saw the addition of 27,900 nonfarm jobs in California. This growth was primarily attributed to expansion in the government sector (15,000 jobs) and private education and health services (10,800 jobs), as well as gains in leisure and hospitality (10,300 jobs), trade transportation, and utilities (4,500 jobs), other services (2,200 jobs), manufacturing (1,900 jobs) and construction (500). The leisure and hospitality sector regained all 995,600 jobs lost in March and April of 2020. However, certain sectors face setbacks, including professional and business services (-11,400 jobs), information (-3,800 jobs), financial activities (-2,000 jobs), and mining and logging (-100 jobs).
The fiscal challenges highlighted in the report, particularly the General Fund cash receipts falling short of expectations, underscore the complexities of economic forecasting and fiscal management. With fluctuating tax receipts, inflation dynamics, and employment shifts, California’s policy makers and stakeholders face the ongoing task of navigating a dynamic economic environment and making informed decisions to promote stability and growth in the state.
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