Trailing Nation, State Posts Weak Job Growth in March

California’s employment growth stalled the last two months, sharply trailing the nation’s job-creation pace and raising questions about the durability of the recovering labor market.

Nonfarm employers statewide added a skimpy 5,200 net jobs in March, suffering from hefty cuts in government and manufacturing, state officials said Friday. The job gain was a fraction of what economists were expecting after last week’s report showing payrolls nationwide expanded by 308,000 in March.

Moreover, California’s Employment Development Department revised downward its jobs tally for February. Employment fell by 2,300 that month, they said, versus a previously estimated rise of 8,800.

“Before this, there was some hope that job growth was accelerating,” said Howard Roth, chief economist at California’s Department of Finance. “Maybe, once again, it’s not happening as soon as we thought.”

California’s unemployment rate rose to 6.5% in March from 6.3% the previous month.

Employer groups, company executives and economists blamed California’s lagging performance on the state’s budget woes and unfriendly business climate and firms’ continued cautiousness.

“The employment figures are a reflection of these costs that are spiraling out of control,” said Allan Zaremberg, president of the California Chamber of Commerce, referring to expenses such as workers’ compensation rates and unemployment insurance taxes.

The lack of substantial job growth has been a persistent concern for policymakers and workers since the nation officially came out of recession in late 2001. Many economists had attributed the so-called jobless recovery to labor-saving productivity gains and a shift of work overseas. But the surprisingly strong U.S. employment report finally gave President Bush some cheerful economic news and raised hopes among analysts that the long jobs drought might be over.

The new report for California muddles that picture. Until now, the state had closely tracked the national performance in job creation, and economists were looking for it to add about 40,000 jobs in March, based on its share of the labor force. The big discrepancy could mean that U.S. job additions last month were overstated. Or, conversely, there might have been an undercount for California. Both sets of data are subject to revision.

March jobs reports for other states won’t be released until later this month, but analysts said it was likely that the Sun Belt -- Nevada, Arizona, Texas and Florida -- along with areas like Washington, D.C., garnered an outsized share of the new jobs created last month. Labor markets in those places have benefited from rapidly growing populations, lower business costs and a larger stake in faster-growing industries such as tourism, defense and health services.

California enjoys some of those same advantages, plus it is a leader in international trade, technology and entertainment -- industries in which companies are enjoying stronger profits and brisker demand. But according to data from the state Employment Development Department, they aren’t hiring enough new workers in California to turn the labor market around. Northern California, in particular, continues to be a drag on the rest of the state economy.

“Something eventually will give,” said Brad Williams, chief economist at the California Legislative Analyst Office. “Either jobs have to pick up or the economy is going to slow.”

Williams said he was perplexed by Friday’s weak jobs report because other indicators, including payroll tax withholdings in March, suggested that the labor market was doing better. What might be happening, he said, is that companies “are meeting the increased demand through tremendous productivity increases and remain hesitant to hire workers.”

In March, six of the state’s 11 major sectors added jobs, but only one -- trade, transportation and utilities -- showed significant payroll increases, adding 11,800 positions. And that gain was largely offset by continuing cuts in manufacturing and government.

In the U.S. report for March, job gains were broad-based and manufacturing losses ceased. The unemployment rate rose a notch to 5.7% as more workers entered the labor force.

In California, construction showed virtually no employment growth, and the sprawling professional and business services sector lost 1,300 jobs. The high-paying information sector declined by 2,500. On the positive side, financial-activities businesses, boosted by the solid housing market, added 2,700 jobs over the month.

State and local agencies reported a drop of 6,000 jobs last month. In the last 12 months, public-sector employment in California has shrunk by 56,900 jobs, or 2.3% of its total payrolls. By comparison, government payrolls nationally have declined by 0.2% in the same period.

The brunt of the government cutbacks in California have been felt by county and city services, which are reeling from a shift of tax dollars to the state to support Sacramento’s budget.

“We’ve got the state trying to balance the budget by yet again taking revenue streams out of local government, so it’s not surprising that we’re shedding jobs,” said Larry Lisenbee, San Jose’s budget director.

He said San Jose, which hasn’t recovered from the high-tech downturn, trimmed 230 jobs in the current fiscal year and would probably need to erase 300 to 400 jobs in July. “We’re into a downsizing exercise that’s going to take at least a couple more years,” Lisenbee said.

The outlook is only slightly better for public agencies in Southern California.

“My department is as thin as it can get. I’ve cut everything else,” said John Moorlach, Orange County’s treasurer, who is planning to cut his payroll by 2% in the next fiscal year.

Seen over 12 months, employment growth outside of the public sector has grown at a modest rate, said Steve Cochrane, who tracks the Western region for Economy.com.

Also, he said, performance varied widely by region. In the last 12 months, nonfarm employment in the Bay Area has fallen by 1.6%, or 51,400 jobs, while the seven-county Southern California area has grown by 33,400, an annual growth rate of 0.4%.

Still, that’s an anemic growth rate and not nearly enough to bring down the jobless rate, analysts said. What’s more, manufacturing continues to be a drag on employment. Although factory payrolls nationwide held steady in March, amid rising industrial production and brisk orders, manufacturing fell by 2,000 jobs in California.

“You still have declines in plastics and electronics and garment that are vulnerable to foreign competition,” said Jack Kyser, chief economist at the Los Angeles County Economic Development Corp. In some cases, he noted, “they’re seeing orders go up, but they’re not hiring because of cost issues.”