California’s unemployment rate is the highest in the nation. Slower job growth is to blame

SACRAMENTO, Calif. (AP) — California’s unemployment rate is now the highest in the country, reaching 5.3% in February following new data that revealed job growth in the nation’s most populous state was much lower last year than previously thought.

California lost a staggering 2.7 million jobs at the start of the coronavirus pandemic, losses brought on by Gov. Gavin Newsom’s stay-at-home order, which forced many businesses to close.

The state has added more than 3 million jobs since then, a remarkable streak that averaged just over 66,000 new jobs per month, according to the state Employment Development Department.

But a recent analysis of unemployment data by the federal government revealed that job growth slowed significantly last year. The federal government releases job numbers each month that state officials use to measure the health of the economy. Each year, the federal government analyzes these numbers to see if they match payroll records. Normally, the revisions are small and don’t impact the overall view of the economy.

But this year, while the data initially showed California added 300,000 jobs between September 2022 and September 2023, the corrected numbers released earlier this month show the state added just 50,000 jobs during that period.

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“I think California’s economy is the leading edge of the national economic slowdown,” said Sung Won Sohn, a professor of finance and economics at Loyola Marymount University.

Estimating the number of jobs is tricky. The number is based on monthly surveys of workers. The recently corrected numbers show that the survey overestimated job growth in some sectors — with the biggest difference coming in the professional services category, which includes the often high-paying professions of lawyers, accountants and engineers, according to an analysis by the nonpartisan Legislative Analyst’s Office in California.

Last year, the preliminary numbers showed California added 9,900 jobs in July. But the corrected numbers show the state actually lost about 41,400 jobs that month.

Seven of California’s 11 job sectors lost jobs in February. The largest decrease was in construction, with 9,600 jobs lost — a reflection of disruptions from a series of strong storms that hit the state in February. The job losses would have been much worse had it not been for a strong showing among the health care sector, led mostly by increases in jobs such as acupuncturists and dieticians, according to the state Employment Development Department.

California’s economy soared during the pandemic, propped up by billions of dollars in federal aid and a runaway stock market that fueled rapid growth within the technology industry. Now, it appears the tech companies may have hired too many, too quickly.

“The tech sector, especially major firms, over-hired in the first post-pandemic year, and has been shedding jobs since,” said Michael Bernick, a former director of the California Employment Development Department who is now an attorney with the Duane Morris law firm. “The (San Francisco) Bay Area is the new epicenter of Artificial Intelligence start-ups. But these start-ups so far are creating a small number of jobs.”

The economic slowdown has made its way to the state’s budget, which for the second year in a row is facing a multibillion-dollar deficit. The Newsom administration and the nonpartisan Legislative Analyst’s Office disagree about the size of the deficit. The Newsom administration reported the deficit was $37.9 billion in January. But the LAO says it could be as high as $73 billion.

The governor and state Legislature usually finish the first version of the state’s spending plan in June. But this year, with the deficit so large, Newsom has been negotiating with legislative leaders on some early actions they could take next month to reduce the deficit ahead of the April tax filing deadline, which is when state officials get a better idea of how much money will be available to spend.

State Senate leader Mike McGuire, a Democrat, said he believes lawmakers need to reduce the deficit by at least $17 billion.

“The quicker we move, the better it is for California,” McGuire said. “We are going to have to make sacrifices. But early action means that we can bring this deficit to a more manageable level.”