Job growth nationally continues to exceed expectations, and while the labor market in California has tempered, it still shows many markers of strength. Coupled with inflation that seems to be stabilizing, talk of the potential for a “soft landing” has increased.

A soft landing occurs when an overheated economy, reflected in high inflation, cools down through Federal Reserve actions to reduce inflation without triggering a recession. The US economy has achieved few soft landings, but nearly a year of improvements in inflation alongside continued labor market growth are promising indicators.

Both measures of inflation in September were unchanged from August; prices are now rising at 3.7%, a slower and more consistent level compared to increases of more than double that rate just over a year ago. Housing costs are keeping current inflation elevated, increasing 7% over the past year; excluding housing prices, inflation would be 2%.  While housing costs are a concern, especially in California, increases mainly affect those who move (or want to move) and renters whose housing costs are not locked in.

At the same time, new jobs data suggests that taming inflation hasn’t hurt the labor market much. California’s unemployment has increased slowly from a low of 3.8% in August 2022 to 4.7% last month—slightly above the national unemployment rate of 3.8%, which has risen even more slowly.

Increased unemployment is exactly what Fed-watchers are concerned about—that rising interest rates will cause negative growth and higher unemployment. So upticks are worth watching, especially for those experiencing job challenges and as California diverges from the nation.

In the last month, California has added 8,700 jobs, a similar pace to the prior three months but much slower than its typical pace. And while California makes up 11.5% of all jobs nationally, it contributed only 3% of new jobs in September.

Without strong growth in California’s health sector and in accommodations and food services, jobs could have been in negative territory. The 12,100 new jobs added by accommodations and food services in September pushed the sector above pre-pandemic levels. For businesses in a sector fundamentally affected by the pandemic, this recovery is a bright spot. However, jobs are typically lower wage both in this sector and in the leading sector for growth, health care and social assistance (18,200 jobs).

The two sectors with the largest job losses in September tend to be higher wage: information and professional and technical services. Were it not for job losses in these sectors—where most tech jobs are counted—overall job growth could have doubled. Although declines were small relative to each industry’s size, they mark a few consecutive months of shrinkage (six months in the information sector and two in professional and scientific services). Administrative service and manufacturing jobs also declined in September.

Layoffs in the tech industry continue to make headlines, as well as those by prominent employers like Pfizer (categorized in the manufacturing sector). These layoffs could be contributing to the sector picture, though data does not permit an explicit connection. The tech industry includes companies categorized as information sector (like Meta), professional and technical services sector (like tech consulting), as well as manufacturing (like Apple). But there are other non-tech businesses in each of these sectors.

While nationally and in California, increases in job openings in August were a surprise, the trend in job openings is weaker in California. Job openings are still historically high but have dropped in California over the past year—by twice the national rate.

The Federal Reserve might further increase interest rates to help slow the national economy, which is showing greater strength than in California—and this will impact California’s businesses, workers, and overall economic outlook. State leaders should monitor any resulting changes to California’s labor market—even limited changes as in the past month—to help guide state policy decisions in a time of economic uncertainty. These decisions may help offset any adverse consequences in California of a slowdown in the national economy, particularly for businesses, sectors, and workers on the losing side of present trends.