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Wells Fargo Securities Economics Group: California’s Unemployment Rate Finally Falls Below 10%
Area Development Online News Desk (12/21/2012)
Source: Wells Fargo Securities Economics Group

Unemployment Declines in November, But So Does Employment
California’s labor markets continue to show steady improvement in November, with the unemployment rate falling 0.3 percentage points to 9.8 percent and nonfarm employment remaining solidly positive on a yearover- year basis. Nonfarm employment fell slightly in November, with overall payrolls declining by 3,800 jobs. Employment remains up solidly year-to-year, with overall payrolls up 1.9 percent, producing a net gain of 265,900 jobs. Private sector payrolls are up 2.6 percent. California’s unemployment rate has fallen 1.5 percentage points over the past year, compared to a 1.0 percentage point drop in the jobless rate nationwide.

While California’s jobless rate has come down more rapidly than the nation’s, so has the labor force participation rate. California’s labor force has actually contracted by 62,000 persons over the past year, producing a 0.9 percentage point drop in the labor force participation rate, which now stands at 62.5 percent. Nationwide, the labor force participation rate fell 0.4 percentage points to 63.6 percent. The larger drop in California’s participation rate likely reflects demographic differences and a higher hurdle rate for jobseekers, given the state’s higher cost of living.

Overall job growth has been stronger than the nation over the past year, which should be encouraging greater labor force participation. Moreover, the quality of jobs being created is fairly good. Growth in business and professional services, information services, construction and the leisure and hospitality sector continue to lead California’s recovery. Much of that growth is being driven by gains in social networking and hand-held computing devices, which is fueling growth in the software, entertainment and gaming sectors. There is some evidence that growth has cooled off more recently. Personal income growth slowed to a 2.2 percent pace in California during the third quarter and the information sector saw income decline slightly during the quarter. The biggest source of weakness during the quarter, however, was financial services, where income tumbled nearly 2 percent. Even with those declines, California still shows a relatively solid personal income growth over the past year, with overall personal income up 3.6 percent in the third quarter, compared to a 3.2 percent gain nationwide.

California’s economic recovery continues to broaden and that should eventually pull more job seekers back into the labor force. Conditions continue to improve in the housing market, with foreclosures declining and new home construction increasing. California’s construction industry has added 26,400 jobs over the past year. The improvement is primarily being driven by gains in residential construction. Permits for new single-family homes have risen 29.3 percent over the past year, while permits for new multifamily projects are up 49.8 percent. Nonresidential building is also turning the corner and should strengthen further during the coming year.
 
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