California Job Picture Brightens

California’s unemployment rate dipped to 6.6% in August as employers axed far fewer workers than expected, signaling that the state labor market may finally be stabilizing.

A government report Friday said that the state shed a net 1,900 nonfarm positions last month, a modest drop compared with the nation, which saw payrolls plunge by 93,000 in August. In addition, the state Employment Development Department revised July’s net job loss figures to 10,000 -- fewer than half of what the agency had estimated last month.

“This is the best I’ve felt about a negative number for a long time,” said UCLA senior economist Tom Lieser of California’s August job losses. “We are seeing a pattern that argues for a moderate economic expansion over the next year.”

The governor’s office quickly seized on the numbers in what will be the last jobs report before the October recall election, contrasting them with the national employment picture.

“While America continues to lose jobs at a staggering pace, California is once again bucking the trend,” Gov. Gray Davis said in a statement. “The fundamentals of our economy remain strong.”

The state’s loss of jobs has been a major issue for Republican candidates in the recall election. On Friday, Arnold Schwarzenegger, the Republican front-runner, didn’t comment on the employment report when he visited a business in Los Angeles that he said was being forced to move to Nevada because of high costs.

“Instead of leading the nation in job creation, business development and economic strength, California now leads in all of the wrong categories -- taxes, energy prices, workers’ compensation costs and red tape,” Schwarzenegger said.

His campaign Friday released an economic plan that calls for changes in state law that are designed to help businesses, including further cuts in the state’s troubled workers’ compensation system and an overhaul of California’s unemployment insurance program to reduce costs.

Despite the apparently upbeat report Friday, economists cautioned that California’s labor market remained a long way from recovery. Payrolls statewide have shrunk by more than 280,000 in 2 1/2 years, and payroll employment has fallen in six of the last eight months.

Still, analysts said the shrinking job losses appeared to reinforce other signs that California’s economy, like the nation’s, is stirring to life.

A host of economic statistics, including factory production, consumer confidence, exports, housing sales and starts and new business incorporations, indicate that California is gaining momentum. Even hiring is expected to pick up in coming months.

A separate survey to be released Monday by the Los Angeles County Economic Development Corp. revealed cautious optimism by local employers on the hiring front.

The survey of 1,700 businesses found that companies across a broad spectrum of industries are much more likely to consider adding new staff than laying off workers during the next 12 months.

The gubernatorial candidates “are going to have to rewrite their lines,” said Jack Kyser, chief economist with the LAEDC. “You’d have to say that the California economy is in darn good shape considering everything that has happened” over the last few years.

Through the first eight months of 2003, California has shed a net 23,300 nonfarm payroll jobs. August marked the smallest monthly decline so far this year, and the job losses weren’t as widespread as in previous months.

The big loser was the vast government sector, which employs more than 1 in 6 Californians in local, state and federal government positions. Hamstrung by the state’s budget woes, the public sector sliced a net 7,000 jobs in August. Through the first eight months of the year, government payrolls fell 21,900, or 0.9%, a rate six times faster than the job market as a whole.

California’s information sector trimmed a net 4,300 jobs last month, most of them in the motion picture industry. Manufacturing, which has slashed jobs in 31 of the last 32 months, continued its losing streak by dropping 3,700 net positions. Three other major industry sectors -- trade, transportation and utilities; construction; and other services -- also posted declines.

However, economists were encouraged that five of the 11 so-called super sectors tracked by the employment department showed gains last month. Topping the list was professional and business services, which added a net 7,600 jobs. Analysts carefully track that category because it encompasses a number of high-paying professions in the legal, accounting and computer fields. Educational and health services grew by 4,900 jobs, followed by leisure and hospitality with 3,300 and financial activities with 500.

To be sure, signs of a weak job market abound. California’s August unemployment rate declined by one-tenth of a percentage point from a revised 6.7% in July. But long-term unemployment continues to rise. In August, 23.4% of California’s 1.2 million jobless residents had been without work for six months or more -- a new high for this business cycle.

But while the labor market remains comatose, other parts of the California economy appear to be reviving.

New business incorporations, for example, this year have surged to levels unseen since the height of the economic boom in 2000, according to employment department Director Michael Bernick.

“It shows that there is still strong business investment in this state,” Bernick said.

The spirits of California shoppers likewise are brightening. Golden State consumers are now more optimistic than those in the country as a whole, according to researchers at Chapman University, whose California’s Consumer Sentiment Index increased to 90.7 in the third quarter. That’s the second straight quarter the index has improved, reversing a trend that had showed California consumers to be more pessimistic than their shopping counterparts in the rest of the country.

That’s being reflected at merchants’ registers, as U.S. retailers posted healthy sales in August. And it’s showing up in tax coffers in Sacramento as well.

July sales and use tax receipts were $65 million above the month’s forecast of $1.5 billion, according to the latest data from the California Department of Finance. Meanwhile, the state’s payroll withholding receipts jumped 7.9% in July to nearly $2.1 billion, thanks in large part to a recovering stock market, said Howard Roth, the agency’s chief economist.

August tax collection figures are still being calculated, Roth said, “but it looks like revenue is running a bit ahead of expectations, so we’re encouraged about that.”

Companies are looking to borrow more money in anticipation of better times ahead. San Francisco-based Bank of the West has seen a 14% increase in its applications from small businesses seeking funds to help them expand, said Vice Chairman Stephen Glenn. “We’re seeing some signs of life,” he said. “It’s encouraging.”

Auto parts manufacturer Christopher Majeska is borrowing to purchase a bigger facility, even though sales at his Ontario firm have fallen by a third over the last two years, costs for workers’ compensation have exploded and customers are moving more production offshore.

“Things can’t keep going in one direction forever,” said Majeska, owner of West Coast Sheet Metal. “My phone has started ringing again. Things are starting to turn around.”

Indeed, the state’s long-suffering factory sector may finally have hit bottom. National indexes of manufacturing activity have shown steady improvement in recent months.

And though Chapman University’s most recent California Purchasing Managers survey showed another decline in activity in the second quarter, analysts expect the state index to show improvement in the third quarter.

“The worst is over,” said Raymond Sfeir, professor of economics at Chapman.