California’s Unemployment Rate Soars, But Worst Yet to Come

On Friday, the California Employment Development Department announced the state's unemployment rate jumped to 5.3% in March, up from 3.9% the previous month.  (Apu Gomes/Getty Images)

California lost nearly 100,000 jobs in March, state officials announced Friday, signaling a sudden end to a record 10-year streak of growth because of a coronavirus outbreak that has shuttered nonessential businesses and overwhelmed the state’s unemployment office.

The unemployment rate in the nation’s most populous state was 5.3% in March — a 1.4 percentage point increase that is the largest jump on record since 1976, when state officials began using the current formula for tracking job losses.

“We are now in a pandemic-induced recession here in the state of California,” Gov. Gavin Newsom said.

Still, the numbers are just a glimpse of the pain people are already suffering. The job losses were based on a survey taken the week that included March 12. That was one day after the NBA suspended its season and Newsom banned gatherings of more than 250 people, prompting the closure of Disneyland and other iconic attractions.

Most of the state’s job losses occurred after that date, accelerating once Newsom issued a mandatory stay-at-home order on March 19. On Friday, Newsom announced 3.1 million people have filed for unemployment benefits since mid-March.

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When the April job numbers are released next month, it’s likely California’s unemployment rate will be well over 12.5% — the highest it ever got during the Great Recession, according to Michael Bernick, an attorney at the Duane Morris law firm and the former director of the state Employment Development Department.

“These numbers indicate only a small part of the devastation,” Bernick said.

California posted job losses in six of the state’s 11 industry sectors. More than 67% of the losses — or 67,200 jobs — came in the leisure and hospitality industry, which includes restaurants. But the National Restaurant Association said a survey of its California members shows job losses of 560,000 in the first three weeks of March.

In Santa Cruz, Zachary Davis and Kendra Baker opened an artisanal ice cream shop 10 years ago using federal stimulus funds following the Great Recession. They became local celebrities early on when then-Vice President Joe Biden made a thank-you call to their shop, The Penny Ice Creamery, after they had posted a YouTube video praising the economic stimulus act that provided their startup loan.

Their success steadily grew, they opened a second ice cream parlor, a beachside cafe and a taco bar. But when Santa Cruz County public health officials issued a shelter-in-place order on March 16, Davis and Baker laid off 70 workers.

“It was surreal, calling every single employee and saying we’re not going to be open. We don’t have a place for you to come to work, and we don’t know when that will change,” Davis said. “We knew the best thing we could do for them was allow them to file for unemployment.”

They are still doing small-scale takeout that pulls in about 17% of their normal revenue, but it’s not enough to pay the rent and salaries of a skeletal staff they have kept on. They are going into credit card debt, drawing down on limited savings.

Newsom announced Friday he tapped billionaire businessman and former Democratic presidential candidate Tom Steyer as an unpaid adviser for “business and jobs recovery.” Newsom also announced a task force that includes former Federal Reserve Chairwoman Janet Yellen, Disney board chair Bob Iger, Apple CEO Tim Cook and International Longshore Workers Union President Willie Adams, among others.

Friday’s jobs report marks the end of a historic run of growth in the Golden State. Since 2010, California added more than 3.4 million jobs, accounting for 15% of the nation’s job growth as it emerged from the Great Recession.

But with remarkable speed, California is now leading in the opposite direction. Its unemployment claims since mid-March account for 14% of the nation’s total, said Sung Won Sohn, a business economist at Loyola Marymount University.

“Unemployment is in a free fall, and no bottom is yet in sight,” he said.

However, Sohn said there is hope California could be in a better position to weather this downturn because of the state’s dominance in the technology industry, which has seen record demand for streaming services and remote work applications.

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But others aren’t so optimistic. The speed of job losses is unlike anything that California — the world’s fifth-largest economy — has ever seen. The government will likely lift stay-at-home restrictions gradually, meaning spooked consumers and employers will be slow to re-engage.

“That’s what worries me,” Bernick said. “We’re going to have to be very innovative on how we get out of this.”

Davis has always thought of himself and his business partner as embodying the definition of entrepreneurs, with no experience in business but “optimism and the belief that you can figure anything out that you put your mind to.”

His optimism is fading.

“There are days when I think we’re not going to make it,” said Davis, who is married with three small children. “What kind of position am I putting my family in if I’m digging us into a hole that I can’t get out of?”