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Wells Fargo Securities Economics Group: California’s Labor Market Sees Broad-Based Gains in May

Source: Wells Fargo Securities, LLC Economics Group

Modest Gains in May Nonfarm Employment
Following somewhat softer April data, California’s labor market added a modest 10,800 jobs in May. The past couple months of nonfarm payrolldata have signaled a slight deceleration in the pace of the recovery for thestate, but we do not see this as an immediate reason for concern. Californiahas added more than 250,000 jobs over the past year, and has added88,000 jobs year-to-date. In addition, although gains have moderated inthe past couple of months, we are seeing more broad-based gains acrossboth industries and regions of the state. Every sector, with the exception ofconstruction, posted higher payroll numbers in May. Even the slightpullback in construction employment in May is likely payback for thestrong reading in the prior month.

California’s Unemployment Rate Dipped a Notch Lower
California’s unemployment rate fell another 0.4 percentage points to8.6 percent in May. To add to this positive development, California’s laborforce rose by 18,900 in May, after falling the prior month. While the state’sunemployment rate is still 1.0 percentage point higher than the nation, the2.1 percentage point improvement over the past year is greater than thedecline in the national rate. California's drop reflects large employmentgains in the household survey, which has increased 2.8 percent year-overyear,a much larger jump than the establishment survey’s 1.9 percentincrease. It is not unusual to have significantly different movements in thehousehold and establishment surveys from month to month. The largepickup in household employment over the past year is likely a hint thatthere is more improvement in the labor market than the nonfarm payrollnumbers suggest. Additionally, when the unemployment rate improves at arate faster than the 12-month moving average, it is typically an indicationthat labor market is accelerating.

Broad-based Job Gains, But Is There a Pay Scale Divide?
Over the past year, job growth in California has received a boost fromstrength in lower paying service sector industries including tourism, retailtrade, temporary help and home healthcare services. Trade, transportationand utilities added 5,100 jobs in May, while leisure and hospitalityindustries added 9,000 jobs on net. Data from the Quarterly Census ofEmployment and Wages show that job growth in low wage professions hasoutpaced that of all other professions during the recovery. Fourth quarter2012 data are released next week, and we expect this trend to continue.Additionally, we are moving into the summer months, typically associatedwith seasonal hiring in service-providing industries. Although anyimprovement in the labor market is welcome news, we continue to look forstronger job growth in higher paying industries, which would provide theincome growth needed to further California's economic recovery.

California Nonfarm Employment 3-Month Moving Averages; California Unemployment Rate Seasonally Adjusted; California Job Growth in Low-Wage Professions

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