California's Economic Recovery Slows Down in September as Job Growth Lags

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A shopping bag with the message "Help Wanted. Bring Resume!" next to the legs of a mannequin is displayed in a shop window.
A "help wanted" sign is placed in the window of Veronica M clothing store on June 21, 2013, in Pasadena, California. New unemployment claims rose sharply last week in California to more than 80,700, accounting for 31% of all claims nationally despite the state accounting for 11.7% of the nation's civilian labor force. (Kevork Djansezian/Getty Images)

In California, new coronavirus cases are at their lowest point since the start of the pandemic, schools have fully reopened and the more generous unemployment benefits from the federal government have expired — all signs pointing to what should have been a robust economic recovery in September.

Instead, California is now tied with Nevada for the highest unemployment rate in the country at 7.5% after adding just 47,400 new jobs last month, according to data released Friday.

The most populous U.S. state lost more than 2.1 million jobs in two months at the start of the pandemic following Gov. Gavin Newsom’s first-in-the-nation statewide lockdown because of the coronavirus.

Since February, California has been adding jobs at a relentless pace, averaging more than 100,000 new jobs each month. But Friday’s report, coupled with other economic indicators, shows California’s recovery is slowing down.

Last week, new unemployment claims rose sharply in California to more than 80,700, accounting for 31% of all claims nationally despite the state accounting for 11.7% of the nation’s civilian labor force.

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While job postings nationally were 19.2% higher than before the pandemic, in California they were just 2% higher, according to Michael Bernick, a former director of the California Employment Development Department who is now a lawyer with the Duane Morris firm.

“Clearly, the state’s job machine has throttled down to a slower speed in September,” said Sung Won Sohn, a professor of finance and economics at Loyola Marymount University. “This is not exactly what we want to boast about.”

Conservatives and some business leaders had bemoaned an extra $300-per-week federal supplement to weekly unemployment benefits, arguing it discouraged people from returning to work. But those extra benefits expired on Sept. 4, and Friday’s report did not show a massive increase in new jobs.

California’s workforce — the number of people who have a job or are looking for one — increased by 30,500 people in September, similar to gains from previous months. Other states that ended the extra benefits early also did not see an increase in their workforces compared to states that did not.

California’s job growth has been driven mostly by new jobs in hotels, restaurants and tourist attractions as coronavirus restrictions have been lifted.

Data made public Friday by the U.S. Bureau of Labor Statistics showed California’s job gains were behind Texas (95,800 jobs) and Florida (84,500 jobs). These are Republican-led states with leaders who have been highly critical of California’s pandemic approach, as California has been with their approaches.

Nine of California’s 11 industry sectors gained jobs in September, led by leisure and hospitality based on what state officials said was strength in performing arts and spectator sports. Of the more than 2.1 million jobs lost in California at the start of the pandemic in March and April of 2020, the state has regained just over 1.7 million, or 63.5%.

“Our economic recovery continues to make promising progress, with 812,00 new jobs this year and regaining over 63% of those jobs we lost to the pandemic,” said Gov. Gavin Newsom.

"As we continue to recover, our work is more important than ever to get more Californians back on the job and support those hardest hit by the pandemic," Newsom's office posted on social media.

September’s hiring slowdown appears not to have affected California’s finances. California gets most of its money from taxes on personal income, sales and corporations.

So far, the state is collecting a lot more money than officials thought it would. New estimates published Friday show the state is on pace to have between “$8 billion and $30 billion in unanticipated revenue” this year, according to the nonpartisan Legislative Analyst’s Office.

That’s mostly because of the state’s high concentration of billion-dollar tech companies and their wealthy executives, who pay a higher tax rate on capital gains than in most other states.

It’s also because most of the state’s job losses during the pandemic were lower-wage jobs. The state’s higher-wage earners mostly kept their jobs and transitioned to working from home.

That doesn’t mean California could have a $30 billion surplus next year. Every dollar of unanticipated revenue equals about 40 cents of state surplus because of constitutional requirements on how the state’s money must be spent.

Still, Newsom was giddy about the numbers during an interview on Wednesday with NBC’s Chuck Todd in Beverly Hills.

Responding to a question about California’s homelessness crisis, Newsom said California has all of this extra money “because of the economic output that’s second to none in all Western democracies over the last five years.”

He said the money has allowed the state to make recent investments in homelessness services and affordable housing.

“We’re investing an unprecedented amount of money, and we have political will and new accountability measures that have never been in place at the local level to deliver on the reforms necessary,” he said.