Updated "Big Three" Revenue Outlook August 21, 2025
Revenues Presently on a Path to Beat Budget Expectations. Our updated forecast anticipates revenues from the state’s three largest taxes (income, corporation, and sales) will come in above the level assumed in the recently adopted state budget. This upgraded outlook is entirely attributable to higher expectations for income tax collections. Income tax collections are being driven higher by enthusiasm around artificial intelligence, which has pushed the stock market to record highs and boosted compensation among the state’s tech works. Given this, we suggest approaching the improved revenue outlook with guarded optimism. Further, the state was expected to enter the next budget cycle with a sizable operating deficit. This fact, combined with the state's complicated Constitutional budget rules, means revenue improvements are likely to translate to smaller deficits, rather than new budget capacity.
Monthly Jobs Report August 21, 2025
California's traditional jobs report suggests the state added 15k jobs in July, and the prior month's report was revised down from -6k to -10k. The state's traditional jobs report has shown a net job decline since the start of the year. Employment numbers from a secondary source, a household survey, have been more encouraging this year but dipped in July. Our hybrid measure that incorporates the household survey and has more closely tracked final jobs data suggests the state added 4k jobs in July (for a net total of 68k for the year so far).
Inflation Tracker August 21, 2025
July data for the US show annual inflation remained above pre-pandemic averages with the downward trend seen since mid-2022 slowing. Between June 2024 and June 2025, prices for US consumers grew by 2.7% and prices for CA consumers grew by 3.0%. There are some differences between the source of price changes for US and CA consumers: e.g., gasoline prices did not decline as much in CA over the last year as they did in the rest of the country. Consumer expectations about inflation in the next one to five years have fallen after spiking in April and May but remain elevated.
Firearms and Ammunition Revenue Update (2025 Q2) August 18, 2025
Beginning July 2024, Chapter 231 of 2023 (AB 28, Gabriel) imposed an 11 percent excise tax on retail sales of firearms, firearm precursor parts, and ammunition, with some exemptions. For firearm and ammunition excise tax returns filed for 2024-25, the total amount of tax due is $58 million—a bit lower than the budget package revenue assumption.
Income Tax Withholding Tracker August 7, 2025
Income tax withholding in July came in $402 million (5 percent) above newly released projections included in the 2025-26 budget agreement. July income tax withholding grew by about 14 percent above the prior year level. The recent trend in withholding remains strong by historical standards.
California New Car Registrations: June 2025 July 29, 2025
Seasonally adjusted new car registrations grew 1.5 percent from May to June. This moderate growth stands in contrast to the substantial volatility we had observed in the prior six months. Due to the sharp decline in May, however, sales remained somewhat lower than the average level over the last couple of years.
California Housing Affordability Tracker (2nd Quarter 2025) July 24, 2025
Our post provides an updated snapshot of housing affordability in California. Over the last few years, we have seen a rapid increase in California housing costs, led by the dramatic increase in the costs of purchasing a home. Monthly costs for a newly purchased home are about $2,700 higher than they were just a few years ago, driven both by increases in home prices between 2020 and 2022 and an increase in mortgage rates since 2022.
The rapid increase in mortgage rates in 2022 has also left most existing homeowners "locked-in" to mortgages with rates significantly lower than currently available. More than 80 percent of California homeowners have mortgage rates under 5 percent, compared to current rates of about 7 percent. These homeowners face a significant additional financial cost to moving, further limiting the number of homes available for sale.
California New Car Registrations: May 2025 July 9, 2025
Seasonally adjusted new car registrations dropped 10 percent from April to May. As result, May’s monthly total was the lowest since June 2024.
Early Data Revision Shows No Job Creation During 2024 Q4 June 24, 2025
Since mid-2022, the state's monthly jobs survey has tended to overestimate actual employment growth. The newest incoming data (from the fourth quarter of 2024) show the monthly survey again overstating employment. Specifically, the most recent match to administrative records shows the survey overestimated job creation from last September through December by roughly 100,000 jobs (preliminary survey gain of 102,000 relative to net loss of 1,000 jobs).
California New Car Registrations: April 2025 June 10, 2025
Seasonally adjusted new car registrations grew 5 percent from February to March, then another 4 percent from March to April. With this strong growth, registrations reached their highest level in nearly three years. Although tariffs on imported vehicles went into effect in early April, seasonally adjusted new vehicle prices did not rise substantially.
Cannabis Tax Revenue Update (2025 Q1) June 3, 2025
For cannabis excise tax returns filed for the first quarter of 2025, the total amount of tax due is $141 million. With this latest data, we currently project cannabis tax revenues of $594 million in 2024-25 and $732 million in 2025-26. Both of these estimates are within $5 million of the administration's May Revision forecast.
Firearms and Ammunition Revenue Update (2025 Q1) May 21, 2025
Beginning July 2024, Chapter 231 of 2023 (AB 28, Gabriel) imposed an 11 percent excise tax on retail sales of firearms, firearm precursor parts, and ammunition, with some exemptions. For firearm and ammunition excise tax returns filed for the first three quarters of 2024-25, the total amount of tax due is $44 million. Based on this data, the administration's estimate of $65 million for 2024-25 appears reasonable.
Assessing The Recent Drop in Consumer Sentiment May 9, 2025
Real-time economic indicators such as consumer sentiment have declined rapidly in early 2025. A similar decline in consumer sentiment has occurred only nine other times since 1983. These declines usually precede a period of below average growth but also sometimes precede periods of growth that exceed historical averages. Given that concrete measures of economic activity that reflect the current moment will not be available for a few months, we urge policymakers to weigh the risk of both a further downturn and of better than expected growth when making budget decisions.
Five Guidelines for Using Revenue Forecasts May 9, 2025
As part of building the state budget each year, the Legislature and Governor must make an assumption about how much revenue the state will collect. Because no one knows how much revenue the state will collect next year, leaders must rely on revenue forecasts. Both our office and the Department of Finance (DOF) provide periodic revenue forecasts that can be used for this purpose. These forecasts use the best available data to provide informed estimates of future revenue collections. Although they have limitations, they are important to the state budget process because they offer an objective foundation on which the budget can be built. In this post, we offer guidelines to help make the best use of these revenue forecasts—that is, to help them focus on the right questions, avoid overreactions, and be better positioned for the unexpected.
California New Car Registrations: March 2025 May 9, 2025
Seasonally adjusted new car registrations grew 5 percent from February to March. With this strong growth, March was the fourth highest monthly count of registrations in the last two years. As we track data for the next few months, we will see if this growth continues or if it was a transitory bump in anticipation of tariffs.