California’s Annual Jobs Revision Shows the Pandemic Hit Employment Much Harder Than Originally Estimated; Still, Outlook for 2021 Significantly Brighter

Latest January Numbers: More Jobs Shed and Workforce Contracts

The annual benchmark revision released today by the California EDD saw 2020’s employment figures revised downwards significantly, according to an analysis released jointly by Beacon Economics and the UC Riverside School of Business Center for Economic Forecasting and Development. Employment growth in the state from December 2019 to 2020 was revised down from -8.0% to -9.2%. This revision translates into 206,500 more jobs lost in California during the year than the EDD originally estimated.

Typically, annual revisions show greater job losses than were initially reported during recession periods, so this downward adjustment was somewhat expected. At the same time, the revised figures show the true magnitude of the hole that the pandemic and its effects left in the state’s labor market.

“As it turns out, the labor market fallout in 2020 was significantly worse in California than originally estimated,” said Taner Osman, Research Manager at Beacon Economics and the UCR Center for Forecasting. “And it hasn’t made the reading any prettier.”

Compared to December 2019, there 1.6 million fewer jobs in the state’s economy in December 2020; this compares to the EDD’s original estimate of 1.4 million fewer jobs. Likewise, the drop in the state’s labor force was revised downwards. During the year, 731,300 workers left the labor force, compared to the 523,000 contraction originally estimated. This translates into a labor force drop of -3.8% compared to the original estimate of -2.7%.

Thankfully, a modest recovery has been underway, and with new cases of the coronavirus falling in the state, accompanied by a loosening of health-mandated restrictions on business activity, the labor market should see a strong recovery in 2021. However, the extent of the labor market decline is sobering and employment growth in the state is nearly 2 million jobs behind trend. The labor market is unlikely to return to trend in 2021.

“While we expect a strong recovery in the labor market in 2021, it would take a hiring surge of unprecedented proportions to return the labor market to trend this year,” said Osman. “In fact, we’ll do well to just recover all the jobs lost in 2020 this year, never mind returning to trend.” 

At the industry level, the benchmark revision was mixed, with growth rates in some sectors revised upwards, while others were revised downwards. The biggest upward revisions to year-over-year growth rates (December 2019 to December 2020) were in Transportation, Warehousing & Utilities (from an estimate of -0.2% to a revised figure of 5.0%), Manufacturing (revised from -7.6% to -6.1%), Management (revised from -6.2% to -5.4%), Education (revised from -4.8% to -4.1%), and Government (revised from -7.6% to -7.3%).

The biggest downward revisions in year-over-year growth rates were in Mining and Logging (revised from -6.6% to -16.3%), Real Estate (revised from -2.2% to -8.0% revised), Leisure and Hospitality (revised from -29.8% to 35.4%), Other Services (revised from -20.3% to -23.9%), and Finance and Insurance (revised from 2.1% to -1.3%).

California’s annual benchmark revision was also mixed at the regional level, with growth rates revised up in some areas and down in others. The largest upward revisions in year-over-year growth rates were in Yuba (revised from -14.5% to -7.7%), Stockton (revised from -6.9% to -2.4%), Modesto (revised from -8.7% to -5.5%), Redding (revised from -6.0% to -4.1%), Madera (revised from -5.5% to -4.0%), and Fresno (revised from -6.5% to -4.9%). The largest downward revisions came in the state’s largest metro areas. Downward revisions occurred in Napa (revised from -8.0% to -11.6%), Santa Rosa (revised from -9.2% to -12.6%), San Francisco (MD) (revised from -9.9% to -12.7%), Los Angeles (MD) (revised from -9.1% to -11.6%), San Rafael (MD) (revised from -9.5% to -12.1%), and San Diego (revised from -6.9% to -8.8%).

January Numbers

Nonfarm employment in California stumbled out the gate to start 2021. The latest figures released by the California EDD reveal that the state shed 69,900 jobs in January.

Since the depths of the pandemic-driven labor market downturn in April, only 34% of the jobs lost have been recovered, and in January, there were 1.8 million fewer people employed in California than in February 2020. Total nonfarm employment in the state has contracted 10.2% since February 2020. This pace of growth trails the nation overall, where nonfarm employment has shrunk by 6.5% over the same period.

“The surge in new coronavirus cases that occurred in the fall of 2020 put the labor market recovery that had been underway on hold for four months,” said Osman. “Unfortunately, December’s and January’s job losses have returned employment levels in the state to where they were in September 2020. But even though this damage cannot be repaired overnight, the outlook for 2021 is much more positive.”

The January numbers show that California’s unemployment rate declined to 9.0%. However, this decline did not occur for all the right reasons. The state’s labor force also contracted by 36,500 in January, while household employment expanded by 31,800. From a year-over-year perspective, California’s labor force has contracted by 4.0%.

Industry Profile

• The Retail Trade sector added more jobs in January than any other sector in the state’s economy, boosting payrolls by 25,400 positions. While this strong month helped recover some of the jobs lost during the economic downturn, the sector is still down 5.0% from a year-over-year perspective.
  
• The Administrative Support sector also had a strong month, increasing payrolls by 4,900 in January. Other sectors posting strong gains in January were Government (3,600), Wholesale Trade (1,800), and Real Estate (1,000).
  
• Payrolls decreased in a handful of sectors in January. Leisure and Hospitality posted the largest decline, where payrolls fell by 70,600. The month-over-month contraction also drove year-over-year declines to -38.9%.
  
• Payrolls in Transportation, Warehousing, and Utilities (-13,500), Education (-10,000), Manufacturing (-4,600), Construction (-4,000), Other Services (-3,300), and Professional, Scientific, and Technical Services (-1,100) also contracted in January.

Regional Profile

• Within the state, job declines were concentrated in Southern California. Orange County saw the steepest declines, where payrolls contracted by 22,900 during the month. San Diego (-14,600), the Inland Empire (-5,300), Los Angeles (MD) (-4,300), and Ventura (-1,100) also saw payrolls decline during the month. Over the past year, Los Angeles (MD) (-12.1%) has experienced the steepest job losses in the region, measured by percentage decrease, followed by Orange County (-11.7%), San Diego (-10.2%), El Centro (-9.9%), Ventura (-9.6%), and the Inland Empire (-6.3%).
  
• In the San Francisco Bay Area, payroll growth was mixed with San Rafael (MD) leading the way, where payrolls expanded by 2,600 positions in January. Payrolls in the East Bay (2,300) also expanded during the month. In contrast, payrolls contracted in San Francisco (MD) (-4,800), Santa Rosa (-2,100), and San Jose (-1,800). From a year-over-year perspective, Santa Rosa (-13.9%) has had the steepest declines in the San Francisco Bay Area, followed by San Francisco (MD) (-13.4%), Napa (-11.9%), San Rafael (MD) (-10.5%), the East Bay (-9.7%), San Jose (-8.9%), and Vallejo (-8.5%).
  
• In the Central Valley, Sacramento saw the strongest monthly gains, where payrolls increased by 3,200 positions. Redding (1,000), Visalia (700), Merced, (600), and Hanford (500) added jobs as well. Over the last year, Chico (-12.8%) had the steepest declines, followed by Yuba (-8.5%), Bakersfield (-8.0%), Visalia (-7.4%), Hanford (-6.3%), Sacramento (6.0%), Merced (-5.6%), and Modesto (-5.6%).
  
• On the Central Coast, San Luis Obispo added the greatest number of jobs, with payrolls growing by 300 over the month. In Santa Cruz, 200 positions were added to local payrolls. From a year-over-year perspective, Santa Cruz (-11.8%) shed positions at the fastest rate, followed by San Luis Obispo (-10.6%), Salinas (-9.6%), and Santa Barbara (-9.5%).