California returns to job growth in March, but unemployment rate remains highest in nation

For the second month in a row, California posted the highest unemployment rate in the country, according to new data for March. And it was one of only two states, the other being Nevada, with a March jobless rate above 5%, said the Bureau of Labor Statistics.

On the positive side, data released Friday by the state’s Employment Development Department showed that California’s job growth turned upward last month, though the improvement still lagged behind the national average.

California’s jobless rate remained steady at 5.3% last month, even as unemployment for the nation ticked down to 3.8% in March.

Over the last year, California’s employment growth has been lagging behind the nation as a whole, in large part due to the deleterious effects of high interest rates on three pillars of the state’s economy — high-tech, entertainment and housing.

Analysts say that near-term job growth in California is likely to remain comparatively weak, but prospects down the road look brighter.

Despite the immediate hiring doldrums, the state’s budget woes — including costs for unemployment claims — and stubbornly high inflation, experts think California will not fall into a recession or lead the country into a downturn.

For one thing, the broader U.S. economy is continuing to expand nicely. The nation’s gross domestic product, or total economic output, likely expanded by a robust 3% in the first quarter, according to analysts’ forecasts. The GDP report will be released Thursday.

California’s greater reliance on sectors such as real estate that are highly sensitive to interest rates for financing and investing has hampered the state.

Even so, unlike the housing bust that brought on the Great Recession in 2007-09, many homeowners aren’t struggling with underwater loans or failing to keep up with payments. The overwhelming majority of people in California and the rest of the country have jobs and most homeowners are locked in at fixed rate mortgages that are considerably lower than the current rate of around 7%.

“In general, housing often functions as a trigger or force multiplier in a recession in California,” said G.U. Krueger, a longtime housing economist in Los Angeles.

About 90% of homeowners, in fact, are carrying home loans with rates below 5%, said Joseph Brusuelas, chief economist at the accounting firm RSM US.

So even though more consumers in California are having trouble with credit card debt, data show mortgage delinquencies remain very low.

Moreover, while inflation has been stickier than hoped for, analysts still see overall consumer prices gradually coming down this year and expect the Federal Reserve to begin cutting interest rates this summer or fall, in what is likely to be the beginning of a series of rate reductions.

“California is going to muddle through until we begin to see those rates eased,” Brusuelas said.

In March, the state added 28,300 net new jobs — about 9% of the nation’s total, shy of its 11.5% share of the U.S. labor force. In February, California lost 6,600 jobs while the U.S. added 270,000.

For the first quarter, California saw payroll job gains of 47,300, about 5.7% of the nationwide total.

Meanwhile, the state’s unemployment rate has gone up to 5.3% from 4.5% in March 2023, while the U.S. jobless figure has edged up to 3.8% from 3.5% during the same period.

In March, job growth in California continued to be led by gains in health services and private education. Over the last year, that combined sector has accounted for more than 80% of the state’s added jobs totaling 217,700. That’s followed by growth in government, construction, and leisure and hospitality.

But major sectors of the economy, including information, business and professional services, and manufacturing, have lost jobs over the last year.

The state’s Employment Development Department report Friday continued to show a wide disparity in the unemployment rates by counties, with those in the Central Valley and some rural areas in double digits while the Bay Area and Orange County were below 4%.

For Los Angeles County, the seasonally adjusted unemployment rate in March was unchanged at 5.4%. Over the month, the county added 14,900 jobs, about half the statewide total. The biggest gain of 6,200 was in health services and social assistance. But trade and transportation fell by 3,100 jobs.

Information businesses added 2,000 positions in March. But over the last 12 months, the high-paying sector is down 30,600 jobs in L.A. County — almost all of that due to losses in motion pictures, where employment has been very slow to rebound after the Hollywood strikes last year.