California unemployment hits five-year low
California's construction sector lost jobs in May but had the biggest improvement over 12 months with 6.6% growth. (Photo Credit: Omar Bárcena/Flickr)
There's something happening here, and it's becoming exactly clear. With apologies to Buffalo Springfield, what's clear is that the California economy is on the rebound.
The announcements on Friday that the state's unemployment rate had dropped to 8.6 percent for its lowest level in five years and that state tax revenues were $1 billion higher than projected in May can only lead to the conclusion that the long anticipated recovery in the state is picking up steam.
The state's unemployment rate has now posted two sharp monthly declines in a row and has gone from 9.4 percent in March to 8.6 percent in May, just 1 percent higher than the national rate.
The unemployment rate decline is supported by an increase of 165,000 in the state's labor force over the past year and an a surprising large increase of 529,000 in the number of Californians who are employed, said Steve Levy, director of the Center for the Continuing Study of the California Economy.
The May estimates for the state and Los Angeles County would have been much higher except for a decline of over 15,000 jobs in the motion picture sector, which tends to have very volatile month to month employment estimates.
There was also a disturbing report out of the construction industry, where a decline of more than 8,000 jobs was reported in May. Levy thinks that is an aberration.
"That is not consistent with the increase in building activity going on around the state, so the best advice on the monthly job estimates is "stay tuned for the revisions next month."
Also, looking over the past 12 months, construction had the biggest improvement, at 6.6 percent growth. Leisure and hospitality came in second 4.4 percent growth.
Other major sectors including wholesale trade, real estate and professional services showed continued growth over the past month. Manufacturing, retail trade and health care posted small job gains.
The largest metro area gains in May were in the Bay Area led by the San Jose and San Francisco metro areas, Orange County (all high tech centers) and the Sacramento metro area.
State job gains come amidst a flurry of good news about the California economy. Real GDP growth in California in 2012 was 3.5 percent tied for 5th highest in the nation. The Department of Finance reported that income tax receipts were $500 million above expectations in May and the California Association of Realtors reported another month of strong gains in median home prices.
According to Levy, the gains in home prices have a "triple bottom line" in the sense that they show a strengthening demand for housing, they bring more households out of negative equity so that they can sell their homes without losing money and they allow more homeowners to refinance on the basis of higher equity, which translates into an increase in spending power as their mortgage costs drop.
As always, there are stories that can be sussed out from the data that show room for improvement in the state's economy. The tale of two economies thread is evident when comparing the 4.9 percent unemployment in Silicon Valley's San Mateo County and the staggering 22.8 percent in Imperial County.
To address the inequality, Jerry Brown is proposing to replace the Enterprise Zone (EZ) program with three programs that include a hiring tax credit for companies who hire in distressed regions of California, like Imperial County. Armed with an 2009 PPIC study claiming EZ's didn't create more jobs than in non-EZ areas and with the tale of a tax credit going to a strip club, Brown is pressing a program to transfer the $700 million EZ funding. That money would be dedicated to the new hiring tax credit, a manufacturing equipment sales tax exemption and a panel to help stave off companies from relocationg.
But some businesses and organizations are taking exception to the plan and the PPIC study results, arguing replacing the program would actually hurt Calilfornia's business reputation. Opponents of the plan want to see the current EZ program improved and the manufacturing sales tax incentive put in place to compete with the other states that have it already.
If there's anything that the data, charts and debates show is there's plenty of work to be done to help Californians create more jobs. The California Economic Summit just wrapped up its series of 16 regional forums and regional leaders will begin work on the economic priorities set at the forums, leading up to the second annual Summit which takes place in Los Angeles November 7-8.