While California’s unemployment remains low by historical standards, it has been ticking up. From a low of 3.8% last July, the unemployment rate now stands at 4.6%. Watching this rate gives us insight into how the state’s economy and its people are doing as the Federal Reserve takes action to cool the economy and tame inflation. We recently examined unemployment among demographic groups. Today, we examine how patterns of unemployment have changed across California’s regions.
Over the past year, unemployment has inched up around California. In all nine regions we examine, unemployment is higher today than in July 2022. The Central Valley and Sierra region had the largest increase (up 1.3 percentage points) followed by the Bay Area and the Inland Empire (both up 0.8 points). Orange County had the smallest increase (0.4 points).
However, the unemployment picture was worse in the early part of this year: it peaked at 8.6% in the Central Valley and Sierra region and was elevated across the state. Seasonal patterns in employment may explain some of this bump, as well as extreme rain and flooding that curtailed activity in much of the state, but especially agricultural regions like the Central Valley.
While the uptick in unemployment is concerning, the data do contain good news. Regions that historically lagged behind have caught up somewhat during the pandemic recovery—and that improvement holds even with the present uptick. While the Central Valley and Sierra region, for instance, saw the largest increase in unemployment in the past year, it remains substantially ahead of where it was before the pandemic. The Central Coast and Northern regions are in similar situations.
Improvements in some parts of the state, combined with elevated unemployment in others, mean that unemployment rate gaps between regions are smaller today than pre-pandemic. The lowest unemployment rates are in the Bay Area and Orange County—a consistent pattern before and after the pandemic recession. The Central Valley and Sierra had the biggest gap with those regions pre-pandemic, followed by the Northern and Central Coast regions. Today, those gaps are substantially smaller (down by nearly 2 points). Gaps between the statewide minimum unemployment rate and Sacramento, Los Angeles, and San Diego have also shrunk but by a much smaller amount. The Inland Empire is the only region where the gap has not narrowed.
The differing pace of job loss and recovery has driven this pattern. Jobs fell by less during the pandemic and improved faster in inland parts of the state; jobs in the Central Valley and Sierra region and Sacramento metro are up 6% from February 2020; in the Inland Empire, they are up 5%. At the other extreme, jobs are up just 0–2% in the Bay Area and Los Angeles.
Specifically, job growth in the transportation and warehousing sector drove regional convergence but has slowed in recent months. The sector’s rapid growth during the pandemic and recovery largely benefitted inland regions, especially the Central Valley and Sierra region and the Inland Empire. However, job growth in this sector has been flat since April. Our estimates suggest unemployment in this industry has risen faster than other sectors (the finance, insurance, and real estate sector comes in second; PPIC calculations from Current Population Survey monthly data).
Additionally, while tech sector job growth was second only to the transportation sector in the pandemic, largely benefitting the Bay Area, layoffs may have contributed to recent weakening. That said, job growth in the professional and technical services and information sectors (where many tech jobs are counted) is still in positive territory with growth above most other industries (9% and 3% growth relative to February 2020, respectively).
Across California, jobs grew at a slower rate this past year than before. As a number of economic indicators have shown, this slow growth suggests a somewhat mixed picture of the economy. The labor market is quite strong across the state. But there are some signs of slowdown in job growth and unemployment.
One noteworthy trend coming out of the pandemic is the narrowing of differences across inland and coastal California in job growth and unemployment. The extent to which regional differences continue to narrow, and how they contribute to worker and sector outcomes, are key indicators to watch as we monitor California’s economic well-being.