The California labor market

There have been quite a few reports in recent days about the labor market in California after the state released the November employment data last Friday. This Los Angeles Times story covers most of the details and there were many reports in Central Valley newspapers about the rapidly rising local unemployment rates where, in some counties, this measure now tops ten percent.

From the LA Times story, the net addition of only 900 jobs in November was the most telling indication of a labor market that is changing very quickly - the modest gain comes after month-to-month job losses in two of the previous four months. While the unemployment rate was unchanged at 5.6 percent in November, it is up considerably from 4.7 percent reported last year at this time.

Total seasonally adjusted nonfarm employment grew by just 0.6% in November from a year earlier, according to the Economic Development Department. Employment in construction fell 3.8%, and the financial sector saw a 1.9% drop.

In November, the state lost a net 13,000 jobs in the construction, financial activities, manufacturing, trade, transportation, utilities and government sectors. It gained 13,900 jobs in natural resources and mining, information, professional and business services, educational and health services, and leisure and hospitality.

"We are on recession watch right now," said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp.

The national statistics tell much the same story about where jobs are being lost (construction, financial activities, etc.) and where jobs are being created (education and health services, leisure and hospitality, etc.), however, at the national level, year-over-year job growth has shown no major deceleration as is now the case in California.

A couple charts from the California Employment Development Department website add some important detail to the current situation.

First, the Golden State is probably once again signaling the beginning of a trend that is about to go national.

Earlier this year, the unemployment rate began to rise from under five percent to its current level of 5.6 percent, this rate now holding steady for a third consecutive month. In contrast, the national unemployment rate has ticked up only slightly.

With job losses now centered in construction and financial activities, the spill-over effect into areas such as retail sales within the trade, transportation, and utilities sector has accelerated recently.

From year-ago levels, construction employment has fallen 3.8 percent and jobs in the financial sector have declined 1.6 percent, however, over that same period, employment in trade, transportation, and utilities is about flat.

However, from October to November, it was the trade category that showed the biggest decline with a job loss of 4,200 positions while the financial sector lost 3,600 jobs and construction declined by 1,900. This is the second month of sharp declines in the trade category after having been resilient through most of the last year.

More telling about the California labor market, however, is the regional nature of the current reversal. The Central Valley, otherwise known as "subprime central", has seen the biggest jump in unemployment recently as foreclosures mount and home prices tumble.

To make the outlook even worse, as a result of a rapidly rising budget gap for the current fiscal year, California Governor Arnold Schwarzenegger has announced a "fiscal emergency" which will likely result in at least some job loss in state and local government along with the education and health services category - these sectors have been major areas of job growth over the last year.

It is shaping up to be an interesting year ahead with employment probably turning into a major issue, not just in California, but across the entire country.

------------------------------------------------------

UPDATE: Dec 27th, 9:40 AM

This chart probably makes the point better than the one above regarding recent changes being systemic rather than seasonal.