By Dr. Lynn Reaser, Ph.D., CBE
CALIFORNIA DISPLAYS IT STRENGTH
Countering signs that the economy might be slowing, California joined the nation in reporting a vigorous jobs report in October. The State’s nonfarm employers added 36,400 workers to their payrolls, while the jobless rate remained at a record low of 4.1% (or since at least 1976 when records began).
October’s job gain was the third largest posted this year and was significantly larger than the 22,000 average monthly gain reported for the first nine months of 2018. Gains were widespread across industries and sectors.
Professional and business services saw particularly strong hiring. Increases were also posted in manufacturing (the first advance since March), construction, government, motion pictures, leisure and hospitality, and transportation and warehousing. The impact of e-commerce cost jobs in brick and mortar retailing that was only partially offset by gains in logistics and distribution.
Real estate saw job declines, as interest rates have dampened home sales. Job losses in private education may have been due to problems in accurately accounting for seasonal swings.
California outperformed the nation in terms of year-over-year job growth for the 80th consecutive month, although the margin was small — 1.8% vs. 1.7%.
The ability of the jobless rate to hold at 4.1% was impressive in light of a swell in the number of people newly looking for work. The job market may now be encouraging more people to again search for positions. The even better news is that they are securing those jobs.
JOB TRACKER 2.0
At the beginning of this year we introduced Job Tracker 2.0, which has three major components
Ø The California Heat Map shows which areas are gaining jobs (green), reporting no change (yellow), or losing jobs (red). It is intended to present a snapshot of the current health of California’s economy on the basis of its metropolitan statistical areas (MSAs).
Ø The Regional Job Growth Tracker depicts the job performance over time of California’s major regions (Bay Area, Southern California, Central Valley, and the Central Coast). Its purpose is to call attention to differences that may be developing across California and to show which areas might be accelerating or decelerating.
Ø The Jobs Dispersion Index shows the net percentage of MSAs in any month that are experiencing increases as opposed to declines in employment. A number of 100 would indicate that all 29 MSAs are recording growth, whereas a 0 reading would reflect job losses in all of California’s regions. A Jobs Dispersion Index score of 50 would indicate that equal numbers of MSAs are reporting increases and decreases in jobs or all are unchanged. The Jobs Dispersion Index is designed to illustrate swings that might be occurring in large numbers of individual regions across the State.
It should be noted that all three elements of Job Tracker 2.0 are based on the average number of jobs in the last three months versus the average for the prior three months. This methodology is intended to remove some of the month-to-month volatility in order to understand the progress of underlying trends.
The October Heat Map (Figure 1) shows that 24, or more than four-fifths, of California’s 29 MSAs, recorded job gains during the latest three months versus the prior three months. Only four exhibited essentially no change in their job levels from the previous period, while just one (Napa) experienced a job loss. The breadth of gains across California shows how the economic expansion has swept across both rural and urban areas, embracing a wide range of industries.
The Regional Growth Tracker (Figure 2) shows that Southern California accelerated significantly during the last three months compared with the prior three months. The Central Coast region posted a modest acceleration, while both the Bay Area and Central Valley were essentially flat. Southern California’s pickup during recent months means that it is closing the growth gap with Northern California.
The Jobs Dispersion Index (Figure 3) moved to 84.5, its highest level since January. This was the second consecutive monthly gain and followed three months of decline. The latest gains may alleviate concerns that California might be losing some of its momentum.
California reported robust job growth during October and the performance over the past few months has been impressive. The State’s solid momentum has continued even as uncertainties over U.S. China relations and other issues have persisted.
The challenges going forward will be formidable. Some of the State’s technology leaders are being forced to re-evaluate their business models, the stock market has undergone a major correction, and relations between the U.S. and China have been turbulent. The Federal Reserve is likely to raise interest rates further and the stimulus from tax cuts will fade in 2019. Slowing growth in many overseas nations and a strong dollar will mean additional constraint.
Strong positives remain. Larger wage gains and further increases in employment should buoy consumer spending. Many businesses can be expected to invest to improve their productivity. On balance, California should be able to move forward in 2019 with a further drop in the jobless rate, but do not expect job gains to keep repeating the vigor of the recent past.
Lynn Reaser is chair of the treasurer’s Council of Economic Advisors and chief economist at the Fermanian Business and Economic Institute for Point Loma Nazarene University. The opinions in this article are presented in the spirit of spurring discussion and reflect those of the author and not necessarily the treasurer, his office or the State of California. Job data used in this article is compiled by the Fermanian Business and Economic Institute for Point Loma and is not meant to be used as an official State of California source or replace official information released by the State of California and/or State Department of Finance.