Guest Column: It’s Still All About Jobs

Published June 10, 2014

New construction in SacramentoCalifornia Approaches the Summit

By Lynn Reaser

It was a cruel Recession and the naysayers thought that California would never recover.  Fortunately, it has turned out much differently.The state is now a whisker away from its pre-recession employment high after losing 1.33 million jobs during the downturn. (See Figure 2.)

As of April this year, California is adding jobs at a good pace and across a broad array of industries. Nonfarm payrolls are up 2.3 percent compared with the same time a year ago. California is outperforming the nation, which has seen a more moderate 1.7 percent job gain.

July 2007 marked the pre-Recession peak of California’s economy in terms of jobs, while February 2010 was the low point. With nonfarm payrolls currently at 15.4 million, the state is now only about 25,000 jobs, or 0.2 percent, away from the prior high point. However, the state’s jobs recovery has not been even across either sectors or regions.

Industry Disparities

Although different industries crested at different times, it is useful to compare the composition of the state’s overall job performance relative to the July 2007 peak. In general, gains in the services sector have countered losses on the goods side. There are important exceptions. For example, the mining sector (including oil exploration and drilling) has added jobs, while information services (including publishing), retailing, banking, and government are still trailing their prior highs.

With respect to major sectors showing net job gains since mid 2007, health care leads with an advance of 385,000 positions. (See Figure 3.) This is followed by tourism, professional and business services (ranging from software development to accounting), and private education. The job increases have been impressive and have involved a wide array of both skills and pay levels, varying from restaurant and hotel workers to engineers and doctors.

These gains have been countered by sectors that have still not fully recovered from their July 2007 levels. Construction is still down by the most, with a loss of 227,000 positions, followed by manufacturing. Other laggards include government (concentrated in local government), financial services, and trade. A sharp falloff in mortgage banking has constrained hiring in the banking sector. The move to e-commerce has disrupted brick and mortar retailers and curbed this traditional engine of job growth.

Regional Differences

Geographic discrepancies in the jobs recovery have been as significant as those across industries. (See Figure 4.) The Bay Area has led the upswing with 91,000 jobs added in the San Francisco metropolitan statistical area (MSA) and 69,000 in the San Jose MSA since July 2007.  These gains speak directly to the power of technology and innovation. Biotech and other technology elements have helped drive San Diego’s 15,000 job advance. In contrast, the energy sector has been a primary force pushing employment higher in the Bakersfield MSA.

Much of Southern California has failed to recover to the July 2007 level, in contrast to its northern counterpart. Los Angeles County is still 60,000 jobs behind its July 2007 number, while Orange County is off by 51,000 positions. The legacy of the housing downturn has contributed to the 43,000 job deficiency in the Riverside/San Bernardino MSA (Inland Empire). The real estate boom bust has also been a factor restraining the recovery in the Sacramento and Stockton areas along with other parts of the Central Valley. Oakland’s inability to fully recover its previous job high indicates the limits of spillover effects from the explosion in technology.

Unemployment -- More Catching Up to Do

While California’s economic and job recoveries have been strong, its labor market is still well short of full health. The unemployment rate is the most visible feature of this gap. At the time of the last jobs peak in July 2007, California’s unemployment rate stood at just 5.4 percent. It then rose, more than doubling by early 2010 to a high of 12.4 percent. As of April, 2014, it had fallen below 8.0 percent to 7.8 percent, although this level is still disturbingly high.

Unemployment figures are derived from a survey of households in contrast to the nonfarm payroll numbers, which are generated by company reports. The household data shows even stronger job growth than the payroll figures. The household figures, which include self-employed individuals, show that California has added about 270,000 more jobs relative to July 2007. Unemployment is higher as the labor force has expanded by more than 760,000. It could take another 2-1/2 years to restore a jobless rate of around 5.5 percent.

California’s Jobs Report Card and Outlook

California now appears only a month or two away from restoring its prior job peak in terms of employee payrolls outside the farming sector. The gains have not been equal either across industries or regions. Some sectors and areas have sprinted ahead, while others are still trying to catch up. Meanwhile, the continued increases in the state’s population and labor force mean that just restoring the number of jobs held seven years ago is not enough.

Despite the remaining gaps, the state’s economic progress is significant. Technology continues to show momentum, home prices have rebounded, commercial real estate is firming, tourism has revived, consumers are spending, and international trade is expanding. While significant roadblocks -- such as decreased housing affordability, high energy prices, and California’s drought -- are formidable, the state’s jobs recovery should continue.

Lynn Reaser, Ph.D., is chief economist of the Controller’s Council of Economic Advisors and chief economist of the Fermanian Business and Economic Institute at Point Loma Nazarene University. The opinions in this article are presented in the spirit of spurring discussion and reflect those of the author and not necessarily the Controller or his office.

Figure 2: California Scales the Mountain

Nonfarm employment, thousands

California nonfarm employment

Figure 3: Major Industry Job Gains and Losses

April 2014 vs. July 2007, thousands

Major industry job gains and losses

Figure 4: Major Regional Job Gains and Losses

April 2014 vs. July 2007, thousands

Major regional job gains and losses

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