California Budget Update

     The first half of the State’s 2007-2008 fiscal year (FY) just ended on December 31st, 2007, and the State Controller has released the latest financial results for the General Fund.  In brief, total receipts have increased by 2.2% to $43.7 billion, while total disbursements grew by 3.7% to $59.4 billion.  Thus, the General Fund ran a deficit of -$15.8 billion over the past six months, compared to a six-month deficit of -$14.6 billion registered during fiscal year 2006-2007.

     Some details from the Controller’s report:  (1) Revenue from the big three tax sources—corporation, income and sales & use taxes—increased by just $523,000 (+1.3%) over the same period last fiscal year.  (2) Retail sales and use tax revenues came in a little below last year (down by -0.8%, or -$110,000), while corporate profits tax revenues dropped by -8.8% (-$444,000).  (3) On the spending side, Local K-12 Education received $19.7 billion, a bit below (-0.8%) the previous fiscal year.  (4) However, spending for State Operations was up by +6.7%.  This sum includes higher spending for the Department of Corrections (+10.6%), the State University & College systems (+6.6%), and Debt Service (+5.2%).
 
     The General Fund began the fiscal year with a cash balance of $2.5 billion (down from $9.2 billion a year earlier), not enough to cover this year’s deficit.  Another $1.6 billion was in the “Special Fund for Economic Uncertainty;” which—no longer uncertain—also has been wiped out.  “Temporary loans” have grown by $7.9 billion to fill the gap.

     The General Fund usually runs a deficit during the first six month of the fiscal year, as the “big-money” revenue months mostly are between January and June.  However, this year’s deficit is more than $500,000 bigger than expected.  The problems are almost entirely on the revenue side of the ledger, as revenues are running over $1.1 billion below expectations.  Worse yet, revenue growth has turned negative in FY2007-2008 and may very well continue to slow unless the economy suddenly picks up.  The inevitable conclusion:  some difficult decisions lie ahead in Sacramento.  The Governor last week fired the opening shots in this year’s budget battle by calling for deep cuts in spending and declaring a “fiscal emergency.”  Stay tuned for more reports from the front.   (Nancy D. Sidhu)

PR:  http://www.ebudget.ca.gov/

 

Economic Impact Update of the WGA Strike & the Cancellation of the Golden Globe Awards

     There has been significant interest in the economic impact of the Writer’s Guild (WGA) strike, which spiked with the cancellation of the Golden Globes award ceremony.  The AMPTP (alliance of Motion Picture & Television Producers), which is negotiating with the WGA, keeps a running total of wages lost by both the WGA and the International Alliance since the start of the strike November 5, 2007. 

     The International Alliance (IATSE) represents production workers on movie and television sets.  According to the AMPTP, wages lost by the WGA total $197.0 million, while the IATSE workers have lost $339.7 million.  The ripple impact from these wages not being spent in the Los Angeles economy would be roughly $1.5 billion.

     It is difficult to determine how many people are not working due to the strike, which to date has had its biggest impact on TV production.  There are 60 scripted TV series on which production has shut down, with an estimated 10,500 crew members.

     We have estimated that the economic impact of the Golden Globes is about $60 million.  Losses due to the cancellation have hit the producers, NBC (ad revenue), the Beverly Hilton, and the Hollywood Foreign Press Association (which uses its income from the Globes to award scholarships).  There are a host of other losers, including the banquet staff at the Beverly Hilton (no tips), limo services, hotels and caterers putting on parties (at last count 6 large ones) which could cost around $3 million.

     Damage from the WGA strike is spreading in to the greater community, and it was good news when the Director’s Guild started negotiating with the WGA.  They are expected to reach a speedy agreement with the studios. Keep your fingers crossed for a speedy resolution to the dispute.  (Jack Kyser)

 

California Exports Up in November

     In November, California led the nation in total exports ($12.8 billion) using the Bureau of Economic Analysis' (BEA) U.S. Principal Parties of Interest (USPPI) series.  Texas had the second highest total export value for the month ($11.7 billion).  Year-over-year, California's total exports increased by +9.7% while Texas' total exports increased by +5.9%.  In the area of manufactured exports, Texas edged out California with $9.6 billion versus $9.0 billion (year-over-year increases of +5.0% and +9.7% respectively).  Year-to-date (YTD), total California exports increased by +7.6% (to $117.7 billion) compared with the first eleven months of 2006.
     Using BEA's Origin of Movement (OM) series, Texas led the nation in November with $15.2 billion in total exports, ahead of California ($12.2 billion).  Texas' total exports increased by +11.6% from November 2006, while California's total exports increased by +4.5% over the same period. California’s export of manufactured goods increased by +5.8% from a year earlier (to $8.6 billion), while Texas’ manufactured exports increased by +8.3% (to $12.5 billion) over the same period.  YTD, California exports (OM series) increased by +4.5% (to $110.7 billion) compared to the first eleven months of 2006.
     California’s exports of non-manufactured goods (e.g., agricultural and recyclable waste) grew at a faster rate than manufactured goods through the first eleven months of 2007.  Using USPPI terms, the state’s non-manufactured exports surged by +17.1% (to $13.1 billion) YTD compared to the same period last year.  Using the OM series, the YTD export of California’s non-manufactured products jumped by +13.6% (to $11.4 billion) compared to the first eleven months of 2006.
     The USPPI measure allocates export trade value according to the location of companies having the greatest economic interest in an international transaction, while OM measures trade values at the point where international shipments begin, often at consolidation points near border crossings or other ports of exit.  With its long border with Mexico, Texas is home to numerous international border crossings and warehousing facilities, as well as major rail links between the United States and Mexico.  Industry observers believe that many shipments originating in other states (including California) are credited as Texas exports to Mexico under the OM state export series.  (Eduardo J. Martinez)

State export (OM):
http://www.census.gov/foreign-trade/Press-Release/current_press_release/exh2s.txt
State export (USSPI): http://www.census.gov/foreign-trade/statistics/state/zip/index.html

 

November U.S. Wholesale Trade

     The U.S. Census Bureau reported that total U.S. wholesale sales for merchant wholesalers increased to $380.4 billion (SA) in November, up by +2.2% from October and up by +14.0% from November 2006.  Durable goods were flat from October to November, +0.9%, but were up by +6.1% year-over-year.  The largest increase came from computer equipment sales which soared to $17.2 billion in November, up by +3.9% from October and up by +14.0% over the year.  Furniture posted the largest decline in November, down by -2.5% following a +2.8% increase in October.  The automotive industry declined once again, falling by -0.7% from the previous month and by -1.7% over the year.

     Nondurable goods soared to $205.1 billion in November, up by +3.3% from October and up by a whopping +21.7% from November 2006.  Farm products posted the largest increase with a +9.7% gain from the previous month and up by +55.9% over the year.  Petroleum sales also increased, rising by +8.9% from October and by +48.6% from November 2006. 

     Total wholesale inventories were $406.2 billion, up a bit by +0.6% from October and up by +4.3% from November 2006.  Durable goods inventories rose by +0.5% in November after a -0.4% decline in October, led by automotive (+2.3%).  Nondurable goods inventories increased a bit, up by +0.8% from the previous month and up by +11.0% from a year ago.  This was led by an increase in petroleum inventories, which were up by +2.6% over the month.

     The November inventories/sales ratio for the month declined to 1.07, compared with 1.17 during November 2006. The falling stock-to-sales ratio suggests that inventories will need to be replenished at some point, through either increased domestic manufacturing or higher imports.  (Candice F. Hynek)

PR:  http://www.census.gov/mwts/www/currentwhl.pdf

 

Taxable Retail Sales for California and Local Counties -- Q4 and Year 2006

     The data from the State Board of Equalization were quite interesting.  For the state, 2006 started out with a bang (Q 1 sales up by 7.0% over the year), but ended with a whimper (Q4 sales up by just 0.9%).  For 2006 as a whole, taxable retail sales in the state rose by 3.5% to $389.1 billion.  The weakness in the 4th quarter came in the building materials group (-8.0%), home furnishings and appliances (-3.4%), and the automotive group (unchanged over the year).  The detail here was also interesting: new car sales down by -0.6% to $13.8 billion and service station up by 0.1% to not quite $10 billion.

     There were divergent trends in Southern California.  Los Angeles County saw Q4 sales increase by 1.2% over the year, while total 2006 retail sales increased by 3.6% to $95.5 billion.  Orange County recorded a 2.4% increase over the year to the 4th quarter.  For all of 2006, sales in the county rose by 3.7% to $39.1 billion.

     The real surprises came in the formerly red hot Inland Empire.  Retail sales eased down by 0.1% in the 4th quarter in both Riverside and San Bernardino counties.  The sales increase for 2006 was also identical, a gain of 4.8% to $21.8 billion in Riverside County and to $22.1 billion in San Bernardino County.

4th quarter retail sales in San Diego County rose by 0.6% and by 2.5% for the year as a whole, to $34.6 billion.  Ventura County’s Q4 sales declined by 0.3% and increased by a modest 1.4% for the year to $8.9 billion.  (Jack Kyser)

PR:  http://www.boe.ca.gov/news/2008/79-Y.pdf

 

Hotel Trends in the Bay Area

     According to PKF Consulting, the Bay Area’s hotel industry turned in another strong performance in October, 2007.  In San Francisco, the occupancy rate was 86.4%, compared with 85.7% last year.  The average daily room rate (ADR) rose by 7.6% to $216.24.  In San Jose/Peninsula, the October hotel occupancy rate was 77.4% compared with 73.2% a year ago.  The ADR rose by 5.4% to $140.27.  (Jack Kyser)