California tax revenues take a hit in July

They were off $538.8 million from projections made in the recently passed budget. Unless those numbers turn around, the state will be forced to implement another round of cuts in a few months, including billions of dollars in education spending. You might recall that under the budget deal, revenues had to match projections. The controller's office reports that income taxes were higher than expected, but sales and corporate taxes were lower. From monthly report:

This is cause for concern, but not panic. This recovery was always going to be a slow and tumultuous process. And while employment and economic growth are not as strong as we would hope for after such a deep downturn, leading indicators do not appear to show underlying demand falling off. Weekly employment hours have remained elevated, and initial claims are down after rising for several weeks. Indeed, the Labor Department just reported that 117,000 jobs were gained in July nationwide. Personal income tax in the state also continued to grow despite the recent turbulence. The economy slowed in the first half of 2011, and General Fund revenue underperformed relative to the estimates. But, with the supply chain for durable goods opening back up, consumer spending should pick up in the second half of the year. With the labor markets slowly improving, personal income should also gradually get better.