Robust growth of jobs in state

Unemployment rate hits record low in December

Thanks to stronger-thanexpected job growth, California’s unemployment rate dropped to 4.3 percent in December, a record low since 1976 when the state started tracking data consistently.

That represents a significant drop from 4.6 percent in November and 5.2 percent in December last year, the Employment Development Department said in a press release. The national rate in December was 4.1 percent. (These rates are seasonally adjusted.)

California added 52,700 nonfarm payroll jobs in December alone, a surprisingly strong number that accounted for more than one-third of the 148,000 jobs created nationally in December, said Scott Anderson, chief economist with Bank of the West.

Unemployment was even lower in the Bay Area, but not at record lows. In the San Francisco-Redwood City-South San Francisco metro area, the unemployment rate was 2.2 percent in December. In 1999, it got as low as 2 percent. (Local rates are not seasonally adjusted. The statewide rate, unadjusted, was 4.1 percent in December).

In the wake of the 2007-09 recession, California had one of the highest unemployment rates in the nation. In October 2010, it was 12.2 percent, compared with 9.4 percent nationally. Since then, California has nearly closed the gap.

“We have had very strong job growth since 2011 but we’ve also had a slower population growth,” said Jeff Michael, director of the Center for Business and Policy Research at the University of the Pacific. The

combination pushed the unemployment rate down.

Job growth in California is still positive but had been slowing the past two years, “especially in the state’s professional and technical services sector, which includes many technology jobs,” the Legislative Analyst’s Office said in a November report.

The report, based on employment data through September, predicted that slower job growth would continue through at least 2019. But that was before employment surged over the past four months. Seasonally adjusted, job growth averaged about 46,500 per month in the second half of 2017, compared with only about 10,600 during the first half, Jason Sisney, the office’s chief deputy, said in an email.

This week, Apple and Amazon announced that they would build new campuses outside the Bay Area, raising the question of whether the region can accommodate more growth.

“It’s a sign that … the physical constraints to growth are definitely coming up against limits. That makes it a very undesirable place when you have these mega-projects. They need space to grow. But the majority of employment growth doesn’t come from those major projects,” Michael said. Startups are an important source of new jobs.

Although the Bay Area has some of the state’s lowest unemployment rates (2.7 percent in the San Jose-SunnyvaleSanta Clara metro area and 3 percent in Oakland-HaywardBerkeley), job growth has been faster elsewhere, especially the Inland Empire. People leaving coastal Southern California in search of cheaper housing are moving to Riverside and San Bernardino counties and jobs are following, Michael said.

Employment has been strong across industries, with nine of 11 sectors adding jobs between November and December. Government added the most (10,300, of which 9,200 were in local government), followed by leisure and hospitality (10,100), professional and business services (8,700), information (8,300) and construction (7,000). The only sectors posting job losses were trade, transportation and utilities (which includes retail stores), and mining and logging.

California and the nation are at what most economists consider full employment. At that point, everybody who really wants a job has one, and to fill positions, employers must raise wages, which sparks inflation.

Wage growth had been well below normal during this recovery (although it’s starting to improve), and the labor force participation rate remains below the long-term average, which is partly because Baby Boomers are retiring in large numbers.

This suggests there still could be slack in the labor market, said Ken Jacobs, chairman of the UC Berkeley Labor Center.

If there is slack, the economy could continue to grow without significant inflation. If there’s not, we could be seeing much higher inflation, which could force the Federal Reserve to raise interest rates faster than it had planned to slow the economy down.

The big question is what impact the federal tax cut, which is going largely to corporations but also to consumers, will have. Normally the government cuts taxes when the economy is weak, as a form of stimulus, not when it’s at full employment. “From a macroeconomic perspective, it’s not exactly good timing” for a tax cut, Michael said.

Because the tax cut will add to the federal deficit, “that’s going to make it harder to respond” during the next cycle, when the government needs to spend money it doesn’t have to stimulate employment.