California adds jobs in May; economy shows signs of weakness
California posted another strong jobs report on Friday as the unemployment rate fell to its lowest point since before the pandemic; but the news was overshadowed this week by the surest signs yet of a wobbly economy that could soon usher in a recession.
Employers added 42,900 new jobs in May, lowering the unemployment rate to 4.3%. That's the lowest rate since the 4.1% reached in February 2020, just before the nation's most populous state shut down many businesses because of the coronavirus and lost more than 2.7 million jobs.
California has now regained 93% of the jobs it lost at the start of the pandemic, according to the Employment Development Department. But the news was tempered by other signs of trouble this week as inflation hit a 40-year high, stock prices tumbled and the Federal Reserve imposed the biggest interest rate hike in nearly three decades.
California’s economy will likely be impacted more than other states by those developments, given the state’s reliance on real estate and income derived from capital gains — money made from the sale of various assets, including stocks.
’I think from here on things are going to get worse, not better,” said Sung Won Sohn, a professor of economics at Loyola Marymount University.
The Federal Reserve on Wednesday increased the interest rate for banks when they loan money to other banks. That rate impacts other interest rates across the economy, including mortgage rates.
While the median home price in California set another record in May at $898,980, the monthly average interest rate on a 30-year fixed mortgage surpassed 5% for the first time since April 2010. The result was 9.8% fewer homes were sold in May compared to April, a 15.2% decline from one year ago. It was the lowest sales level since June of 2020, according to the California Association of Realtors.
“We’re beginning to see signs of a more balanced housing market with fewer homes selling above list price and homes remaining on the market a little longer than in previous months,” California Association of Realtors President Otto Catrina said.
Nationally, prices for food, gas and other goods jumped 8.6% in May, the highest since 1981. California retailers, specifically general merchandise stores, lost 3,700 jobs in May, the most of any industry — a sign consumer demand could be slowing.
“My advice for job seekers or anyone who may still be on the sidelines or looking for work: Now is the time to try to get back in. It’s going to get more difficult,” said Michael Bernick, research director for the California Workforce Association and an attorney with the Duane Morris law firm.
Rachel Michelin, president and CEO of the California Retailers Association, said retailers are still seeing strong sales — it’s just more of those sales are happening online instead of at a store. She said retailers are still struggling to hire workers, suggesting the layoffs in May might be the result of business owners adapting to the labor shortage by doing things like installing more self-checkout stations.
But she said retailers are keeping a close eye on inflation, noting many are still struggling with supply chain issues.
“As of today, I would say we’re not as concerned about retail sales overall,” Michelin said. “But I think definitely when you look at some of the big national retailers lowering their expectations, we are bracing for an economic downturn, which then obviously will lead to even more job loss in the retail sector.”
Gov. Gavin Newsom earlier this year signed a $5.5 billion tax cut for most businesses. On Friday, he announced $178.2 million in tax credits for 16 companies that, combined, have pledged to add 7,600 new jobs and $2 billion in private investment. The tax credits are known as the California Competes program, created in 2013 with the aim of convincing businesses to stay in California.
“Investing in innovation works, and no places does it better than California,” Newsom said in a news release.
The nonpartisan Legislative Analyst’s Office has questioned the effectiveness of the California Competes program, saying the success of the program is difficult to measure.