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Amidst Closures, California Employment Expands… But Pace of Recovery a Key Question

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Labor Force Trouble: 1 Million Less Workers In The Workforce Today; State Unemployment Rate Remains Stubbornly High

June 19, 2020 — Although local officials, and the general public continue to grapple with how to appropriately respond to the COVID-19 pandemic, the labor market in California showed signs of life in May, according to an analysis released jointly by Beacon Economics and the UC Riverside School of Business Center for Economic Forecasting and Development.

Following the loss of 2.4 million jobs in April, total nonfarm employment in the state expanded by 141,600 positions in the latest numbers. Given this modest rebound, the unemployment rate in the state remained stubbornly high at 16.3% in May, down from 16.4% in April.

“The folks out there calling for a long, protracted U-shaped recovery, believe the damage from the closures has been so profound that the economy won’t be able to grow even after mandates are lifted,” said Christopher Thornberg, Founding Partner of Beacon Economics and Director of the UCR Center for Forecasting. “It’s true the May data represent only a small uptick, but there was a bounce in employment while the economy was still largely closed.”

Thornberg acknowledges that until the June and July numbers are available – the ones that will reflect what has happened after the reopening of economic activity – the pace back to normality will not be truly understood.

Year-over-year employment growth in California stands at -13.0%, the second largest annual decline on record, only trumped by last month’s figures. The state performed slightly worse than the national economy, where nonfarm employment declined by 11.7% over the same period. April’s numbers were also revised downward, with total nonfarm employment in April 70,300 lower than original estimates had suggested, offsetting some of the impact of the gains seen in May.

As mentioned in last month’s Beacon Employment Report, around 75% of workers who have been laid off in the state report that they are temporarily unemployed, and the hope is that many will return to their prior jobs as communities across the state begin to re-open. That said, many of these workers have been unemployed for close to three months. From May 2019 to May 2020, 2.2 million workers were added to the state’s unemployment ranks. In May, the number of unemployed workers in California stood at 3,018,200, over three and half times the level seen one year earlier. The magnitude of the job losses, and the high unemployment rate, suggest that the damage caused to the state’s labor market will take some time to repair, but the pace is uncertain.

In addition, there were over 1 million fewer workers in the state’s labor force in May than there were in February 2020. In other words, 1 million residents who were either employed or looking for work in February have stopped searching for employment. Labor force participation is usually seen as important sign of economic vitality, as an expanding economy usually draws workers into the labor force.

The state’s economy has fared worse than the national economy with the national unemployment rate at 13.3% compared to 16.3% in California. This could be due to the fact that some states re-opened their economies quicker than California. It could also be that the state’s residents are acting more cautiously than people in other parts of the nation and have been more reluctant to resume normal daily activities.

Key Findings:

  • The Construction sector led jobs gains in May, boosting payrolls by 75,000 positions. The strong month accounts for just over half the jobs lost in the Construction sector in recent months, with year-over-year growth now standing at a 6.9% decline.
  • Leisure and Hospitality also had a strong month, increasing payrolls by 64,800 in May. All of these new positions came from Accommodation and Food Services, which increased payrolls by 66,700. Despite the strong month, Leisure and Hospitality payrolls are down 43.9% from a year-over-year perspective. As parts of the economy continue to open, many of these jobs will return, but the impact of the public health mandated closures and capacity constraints, mean that a significant number of the jobs in these sectors will come back more slowly.
  • Other sectors posting sizeable increase in May were Health Care (45,300), Administrative Support (24,200), Manufacturing (17,100), and Wholesale Trade (11,400).
  • The only sectors posting sizeable declines in May were Government (-95,800) and Information (-6,300). The majority of the declines in Government were from education at the state and local levels.
  • Regionally, job increases were led by Southern California. Los Angeles (MD) saw the biggest jump, where payrolls grew by 31,300 during the month. The Inland Empire (15,200), San Diego (13,400), and Orange County (12,800) also added a significant number of jobs during the month. Over the past year, Orange County (-15.2%) saw the steepest job losses in the region, measured by percentage decrease, followed by Los Angeles (MD) (-13.5%), San Diego (-13.1%), Ventura (-12.5%), and the Inland Empire (-11.7%).
  • In the San Francisco Bay Area, the East Bay experienced the largest job increases, where payrolls expanded by 16,100 positions in May. San Jose (11,000), San Francisco (MD) (7,000), Santa Rosa (4,000), San Rafael (MD) (1,600), Vallejo (1,400), and Napa (600) also saw payrolls expand during the month. Over the past year, San Rafael (MD) (-15.3%) had the steepest declines in the region, followed by Vallejo (-14.1%), the East Bay (-14.1%), and San Francisco (MD) (-13.9%).
  • In the Central Valley, Sacramento experienced the largest monthly increase as payrolls expanded by 18,600 positions. Payrolls in Modesto (3,000), Bakersfield (1,500), Redding (300), and Madera (200) increased as well. Over the last year, Chico (-16.6%) had the steepest declines followed by Modesto (-14.0%), Redding (-12.7%), Bakersfield (-12.4%), Visalia (-12.2%), Stockton, (-11.5%), and Sacramento (-11.3%).
  • On California’s Central Coast, Santa Barbara and San Luis Obispo shed the largest number of jobs, with payrolls declining by 1,600 in each region over the month. Payrolls in Santa Cruz (-1,100) and Salinas (-1,000) also declined during the month. From a year-over-year perspective, Salinas (-19.8%) shed positions at the fastest rate, followed by San Luis Obispo (-18.7%), Santa Cruz (-16.8%), and Santa Barbara (-15.5).

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Christopher Thornberg, PhD
Christopher Thornberg founded Beacon Economics LLC in 2006. Under his leadership the firm has become one of the most respected research organizations in California serving public and private sector clients across the United States. In 2015, Dr. Thornberg also became Director of the UC Riverside School of Business Center for Economic Forecasting and Development and an Adjunct Professor at the School. An expert in economic and revenue forecasting, regional economics, economic policy, and labor and real estate markets, Dr. Thornberg has consulted for private industry, cities, counties, and public agencies. He became nationally known for forecasting the subprime mortgage market crash that began in 2007, and was one of the few economists on record to predict the global economic recession that followed. Dr. Thornberg holds a Ph.D in Business Economics from The Anderson School at UCLA, and a B.S. degree in Business Administration from the State University of New York at Buffalo.