California’s labor market continues to show signs of strength, with employment now 1.7% higher than it was before the pandemic. However, countervailing economic forces add volatility and uncertainty over the coming months: interest rates are rising, inflation remains high, regional banking is under pressure, tech layoffs are mounting after years of strong growth and hiring, and statewide unemployment has gone up slightly (4.3% in February vs. 4.2% in January). These trends are likely to have varying implications across California’s unique regions, reflecting, in part, differences in local sectors. In this post, we examine how seven major regions of the state are faring in terms of nonfarm employment.

The Los Angeles metro area lags slightly behind pre-pandemic levels of employment. Employment in LA has been slower to recover and is still slightly below pre-pandemic levels (a 0.4% decline from February 2020 to 2023). LA had steep employment losses early in the pandemic, reflecting the many arts, entertainment, and hospitality jobs that were eliminated; these sectors have been the slowest to recover statewide. However, strong growth in the health care sector in LA has helped to boost an otherwise sluggish recovery.

The Bay Area is nearing full recovery of the jobs lost during the pandemic. Employment in the region is 0.2% below pre-pandemic levels. Given the dominance of the tech sector in the Bay Area, recent tech layoffs may signal increasing economic pressure for the region. Tech jobs are notoriously difficult to measure in the labor market data. However, recent data suggest that the tech-related employment decline is modest and comes on the heels of a large increase over the past two years. Trends in accommodation and food services have also contributed to the Bay Area’s lackluster job growth; this sector makes up 8% of total employment in the region and has been affected by changing patterns in where people live and work.

The Orange County metro area typifies California’s job decline and recovery. The Orange County metro area is recovering on par with the rest of California, with employment at 1.0% above pre-pandemic levels. Professional, scientific, and technical services as well the trade and transportation sector have been strong drivers of job recovery in this region. These strengths have helped offset a slow recovery in the leisure and hospitality sector, which comprises 10% of employment in the region.

In San Diego, employment declined less and recovered more quickly than in most other regions of the state. San Diego has seen above-average employment growth, sitting at 2.9% relative to pre-pandemic levels (1.3 percentage points higher than statewide). Jobs in professional, scientific, and technical services; health care; and transportation and warehousing are driving growth in San Diego. Expansions in administrative and support services have also contributed to job growth in the region.

The Greater Sacramento area’s job trajectory has been more favorable than the statewide trend. The government sector, which dominates the region, has grown, contributing to Greater Sacramento’s strong 3.7% employment growth relative to pre-pandemic levels (2 percentage points higher than statewide). Recovery in health, professional services, and transportation and warehousing have contributed the most to job gains.  

The San Joaquin Valley has had the second strongest employment growth in California throughout the economic recovery. As of February 2023, nonfarm employment is 5.2% above pre-pandemic levels. Impressive employment growth in the San Joaquin Valley reflects the region’s strength in the transportation and warehousing sector, fueled by strong demand for goods since the start of the pandemic. The health care sector, which comprises over 14% of jobs in the region, has also grown substantially.

The Inland Empire has seen the highest job growth in the state, driven primarily by transportation and warehousing. This sector has been outperforming most others, contributing to robust growth in this region and the San Joaquin Valley. Employment in the Inland Empire has increased 5.3% relative to pre-pandemic levels, continuing to outpace other regions. Administrative services and health care are also large sectors in this region and have contributed to its strong recovery.

Overall, California’s economy is recovering well, and most regions have—or will soon—surpass pre-pandemic levels of employment. The drivers of recovery vary across regions, resulting in stronger job growth in the areas typically harder hit by recessions, like the San Joaquin Valley. This is great news and suggests that in some ways the recovery reduced longstanding regional inequities in the state. However, other concerns remain, including how job growth has affected pay across regions, how to ensure businesses are able to hire enough workers to meet their needs, and how regions will adjust to changes in hybrid/remote work. These are all challenges of what we see as a “new normal” for California’s economy coming out of the pandemic. Leveraging regional economic strengths—and addressing regional challenges—will be key to the state’s economic future.