US employers continued to hire new workers at a rapid pace last month, providing fresh evidence that the overall economy remains strong, but new data showed that California still appears to be underachieving.
California's job growth has been lagging the national curve all year, and although it made some progress in January, the Golden State still lags behind when it comes to adding new jobs.
The state's unemployment rate also continued for months to exceed the national average by more than a full percentage point. California's latest unemployment rate, for January, was 5.2%.
The national unemployment rate rose slightly in February and now stands at 3.9%, marking 25 straight months in which the unemployment rate has remained below 4%.
Across the country, employers added an unexpectedly strong 275,000 jobs last month, many in health care along with government, entertainment and hospitality, the Labor Department report released Friday said.
However, the pace of hiring nationally remained moderate from stronger levels last year, and wage gains slowed in February. With inflation declining in recent months, the Federal Reserve is expected to begin cutting interest rates soon, easing financial conditions for businesses and consumers, especially new homebuyers.
For California, the Fed can't cut interest rates fast enough.
California's February employment report will be released in two weeks. January data released Friday provided a hopeful start to the new year: The Employment Development Department said statewide employers added 58,100 nonfarm jobs, a quarter of the nation's gains for that month.
However, this was not the general pattern. Even with January's hiring spree, only 7.7% of the nearly 3 million jobs nationwide created over the previous 12 months were in California, which represents about 11.5% of the nation's workforce.
On the other hand, California's share of the unemployed in the United States was 16.6%. In recent weeks, about a fifth of unemployment claims filed nationally have come from workers in California.
Why the lagging performance? Economists and business analysts point to a number of factors: some are cyclical, such as the major role that agriculture plays in the nation's economy. Extreme weather and higher costs have hurt almond growers and other crop growers, rippling down to other parts of the economy, especially in the Central Valley.
There are other more systemic reasons, such as the austerity taken by the tech industry after a few years of what is now seen as wasteful hiring. This and some other factors may be long-term trends.
Even more than for the country as a whole, California's job growth over the past year has been highly concentrated, leaving the state's workforce more vulnerable. The bulk of employment was in health care and social services, followed by government and the hospitality sector.
Those missing from work have been a major high-wage driver of the nation's economy. The entertainment industry, centered in Los Angeles, lost 38,000 jobs in the motion picture and sound recording sectors from January 2023 to January 2024.
“The Writers Guild of America and SAG-AFTRA strikes have had a profound impact on employment,” EDD said in its statement. Los Angeles County's unemployment rate rose to 5.4% in January, compared to a revised 5.2% in December.
Overall, the state's information, business and professional services sector, which includes high-paid computer programmers and engineers, was down more than 105,000 jobs in January from a year earlier.
Statewide, transportation and trade-related jobs were down about 10,000 jobs from the previous year, EDD said. Similar declines were seen in financial services and manufacturing.
Part of the state's poor performance can be traced to the pandemic and response, said Michael Bernick, an employment lawyer with Duane Morris in San Francisco and former director of the Employment Development Department.
“Economic shutdowns in California counties were more severe than in other states, and many small businesses never recovered,” he said.
Meanwhile, employers in a range of sectors have been unable to fill entry-level positions, so the state has seen a shortage of workers even as overall unemployment has increased, Bernick said. This, coupled with high labor costs, appears to be hindering hiring in restaurants and retail establishments.
Another big long-term problem, Bernick and other analysts said, is that California is becoming an increasingly difficult place to do business, with employment rules that make hiring difficult and risky. Add to this the high costs to the state, which has pushed many companies and individuals out of California.
“The reason Texas and Florida are doing so well and California is doing so well is the cost of housing and high taxes,” said Sung Won Soon, an economist at Loyola Marymount University in Los Angeles. “We lost a lot of small businesses.”
However, he noted that there is still great dynamism in entrepreneurship in the state, and that ethnic businesses, which dominate the Southland's small business scene, are very resilient.
Analysts expect hiring nationally to moderate in the coming months. The near-term employment outlook may be more mixed for the state.
Although the number of job openings in California has decreased, there is still strong demand for entry-level positions in restaurants, retail stores, and health services. Whether more people will fill these jobs is another question. Labor participation in California was lower than in the country, with many older workers and Latina women remaining on the margins of the labor market.
Tech layoffs have continued this year, but there are signs those cuts may bottom out, said Andrew Challenger of outplacement services firm Challenger Gray & Christmas.
In January, unemployment rates in California varied widely, from a high of 19.3% in Colusa County in the northern Sacramento Valley, to 3.7% in San Mateo in the San Francisco Bay Area.
For Southern California, Orange County had the lowest rate at 4.2%. The unemployment rate in January was 5.5% in Riverside County and 5.4% in San Bernardino County.
