California job growth was healthy in August, but the labor force is shrinking

California’s record job expansion accelerated in August across broad sectors of the economy and unemployment remained low as the state weathered the challenges of slowing global growth.

Employers added 34,000 positions last month — the 114th month that payrolls grew and the longest expansion in state record-keeping, state officials reported. Since the post-recession turnaround began in February 2010, California has gained more than 3.3 million jobs, accounting for 15% of U.S. job growth — more than its share of the nation’s population.

California’s major stalwarts — business and professional services, health and education, and tourism — led the August advance. Government hiring was also strong, boosted in part by workers for the 2020 census.

Unemployment in August held steady at 4.1%, the same as in July and as in August 2018 — an indication that the state’s economy is close to full employment — with economists believing that most people who want jobs can get them. The U.S. jobless rate was 3.7%.

“It is time to celebrate,” said Sung Won Sohn, a business economist at Loyola Marymount University. “The average monthly job gain over the past three months was 30,667 compared to the average of 27,800 during the first half of the year. The economy is moving full steam ahead.”

Nonetheless, economists continued to point to California’s shrinking labor force — the number of people holding jobs and looking for jobs — as a danger signal.

“The state is short of both skilled and nonskilled labor,” Sohn said. “In the past, the sizzling job market has persuaded students, mothers, retirees and those on disability to rejoin the labor market, but the pool has shrunk. If the trend continues, labor force will limit job growth in the future.”

The Golden State’s labor force shrank by 7,800 in August, after dropping by 34,000 in July. Over the last year, it has declined by 0.2% even as the nation’s labor force expanded by 1.3%.

“The strength of the labor market should be attracting more job seekers,” said Lynn Reaser, an economist at Point Loma Nazarene University. “The decline may reflect the impact of prime wage seekers leaving California for lower housing costs, as well as a slowing of immigration from other countries.”

She added that the state’s overall jobs report shows “California’s resilience in the face of slowing global growth, tariffs, trade wars and policy threats towards the state’s tech companies. Lower interest rates have buffered some of these constraints.”

Lenny Mendonca, Gov. Gavin Newsom’s chief economic and business advisor, also alluded to workforce challenges in a statement on the jobs report. “We should celebrate sustained job growth,” he said. “But it’s the story behind the number that counts, and the headline belies the reality. There is a dramatic diversion across the state in terms of economic opportunity — too many Californians are working hard but still falling behind.”

The payroll jobs in the state’s monthly report, measured by a survey of California businesses, do not reflect the millions of Californians who are classified as independent contractors. This week, the governor signed into law a sweeping measure, AB 5, to curb misclassification of workers who should be entitled to be treated as employees with labor protections such as minimum wage, overtime and unemployment insurance.

Hundreds of thousands of contingent workers across the California economy — from construction to trucking to app-based technology companies — could be affected, moving into part-time or full-time payroll jobs.

“The big story regarding California employment over the past few weeks is the passage of AB 5,” said Michael Bernick, former head of the state’s Employment Development Department. “A significant independent contractor presence will continue. But some companies now using independent contractors will convert them to employee status. Others will cut back on the number of workers. As yet, we don’t know how many.”

Professional and business services, some of which include tech jobs, along with education and health, and leisure and hospitality, accounted for 67% of California’s new jobs in August.

The monthly report reflected the effect of the Trump administration’s trade war with China. California is more trade-dependent than most other states. The trade and transportation sector, which includes warehousing, lost 4,000 jobs in August.

“The trade war with China has cast shadow over California’s economy,” Sohn said. “The slowdown could worsen if the trade dispute lingers on and intensifies.”

But he noted that despite the tit-for-tat tariffs, Silicon Valley’s workforce seems little affected so far. The information sector added 2,900 jobs in such fields as web hosting, data storage, audio and video streaming, internet publishing and search portals.

Boosted by the tech economy, the lowest county jobless rates were in San Mateo (2.1%), San Francisco (2.3%), Marin (2.4%) and Santa Clara (2.6%).

Unemployment stood at 3% in Orange County, 3.4% in San Diego County, 3.9% in Ventura County, 4.1% in San Bernardino County, 4.6% in Riverside County and 4.7% in Los Angeles County.