Job growth is booming across the U.S. but not in California. Here’s why

U.S. employers continued hiring new workers at a brisk pace last month, providing fresh evidence that the overall economy remains sturdy, but the new data showed that California is still looking like an underachiever.

California’s job growth has been trailing the national curve all year, and even though it made up some ground in January, the Golden State still lags behind when it comes to adding new jobs.

The state’s unemployment rate also continued a months-long run of exceeding the national average by more than a full percentage point. California’s most recent unemployment rate, for January, was 5.2%.

The national jobless rate went up slightly in February and now stands at 3.9%, marking 25 straight months in which the unemployment figure has remained below 4%.

Across the country, Friday’s report by the Labor Department said, employers added an unexpectedly strong 275,000 jobs last month, many in healthcare along with government and leisure and hospitality.

Still, the pace of hiring nationally has been moderating from even stronger levels last year, and wage gains slowed in February. With a cooling of inflation in recent months, the Federal Reserve is expected to begin reducing interest rates soon, easing financial conditions for businesses and consumers, especially new home buyers.

For California, Fed interest rate cuts can’t come fast enough.

California’s employment report for February will come out in two weeks. The January data released Friday offered a hopeful beginning to the new year: The Employment Development Department said employers statewide added 58,100 nonfarm jobs, a full one-fourth of the nation’s gains for that month.

However, that has not been the general pattern. Even with the burst of hiring in January, only 7.7% of the nearly 3 million nationwide jobs created over the prior 12 months have been in California, which accounts for about 11.5% of the country’s labor force.

Meanwhile, California’s share of the unemployed in the U.S. was 16.6%. And in recent weeks, about one-fifth of all jobless claims filed nationally have come from workers in California.

Why the lagging performance? Economists and business analysts point to a number of factors: Some are cyclical, such as the major role agriculture plays in the state economy. Harsh weather and rising costs have hurt almond and other crop growers, spilling into other parts of the economy, especially in the Central Valley.

Other causes are more systemic, such as the tech industry’s belt-tightening after a few years of what is now seen as profligate hiring. That and some other factors may be long-term trends.

Even more than the nation as a whole, California’s job growth over the last year has been highly concentrated, leaving the state’s workforce more vulnerable. The bulk of the hiring has been in healthcare and social services, followed by government and the hospitality industry.

Missing in action have been key high-paying drivers of the state economy. The entertainment industry, centered in Los Angeles, lost 38,000 jobs in motion picture and sound recording sectors from January 2023 to January 2024.

“The Writers Guild of America and SAG-AFTRA strikes had a profound effect on employment,” the EDD said in its release. Los Angeles County’s unemployment rate rose to 5.4% in January, up from a revised 5.2% in December.

Overall, the state’s information and business and professional services sector, which includes high-paying computer programmers and engineers, was down more than 105,000 jobs in January compared with a year earlier.

Statewide, the EDD said, transportation and trade-related jobs dropped about 10,000 from a year earlier. Similar declines were seen in financial services and manufacturing.

Michael Bernick, an employment attorney with Duane Morris in San Francisco and former director of the Employment Development Department, said part of the state’s underperformance can be traced to the pandemic and the response to it.

“The economic lockdowns in California counties were more severe than in other states, and many small businesses never recovered,” he said.

At the same time, Bernick said, employers in a range of sectors have been unable to fill entry-level jobs, so that the state has experienced worker shortages even with growing overall unemployment. That, along with rising labor costs, appear to be hampering hiring at restaurants and retail establishments.

Another big long-term problem, Bernick and other analysts said, is that California has become an increasingly hard place to do business, with employment rules that make hiring difficult and risky. Add to that the state’s higher costs, which have prompted many businesses and people to move out of California.

“The reason why Texas and Florida are doing well and California isn’t, it’s the cost of housing and high taxes,” said Sung Won Sohn, an economist at Loyola Marymount University in Los Angeles. “We have lost a lot of small businesses.”

He noted, however, that there’s still considerable entrepreneurial dynamism in the state, and that ethnic businesses, which dominate the small-business landscape in the Southland, are very resilient.

Analysts expect hiring nationally to moderate in the coming months. The near-term hiring outlook may be a little more mixed for the state.

Although the number of job openings in California has been dropping, there’s still strong demand for entry-level jobs at restaurants and retail stores and in health services. Whether more people will fill those jobs is another question. Labor participation in California has been lower than in the nation, with many older workers and Latina women remaining on the sidelines of the job market.

Tech layoffs have persisted this year, but there are signs that those cuts may be bottoming out, said Andrew Challenger of the outplacement services firm Challenger, Gray & Christmas.

In January, jobless rates in California varied widely, with a high of 19.3% for Colusa County in the northern Sacramento Valley to a low of 3.7% for San Mateo in the San Francisco Bay Area.

For Southern California, Orange County had the lowest rate at 4.2%. January‘s unemployment rate was 5.5% in Riverside County and 5.4% in San Bernardino County.