California’s economy is strong, but persistent disparities could affect long-term growth

Southern California’s job picture continued to brighten in February, as unemployment remained low while Los Angeles, Orange, Riverside and San Bernardino counties added payroll positions at a steady pace.

By many measures, California’s economy is performing well. The statewide unemployment rate is at a long-term low. Jobs have been growing for more consecutive years than is typical. Construction and major service industries—at both the high- and less-skilled levels—are projected to continue to drive job growth over the next decade. These job market improvements are reflected in family incomes, which have picked up substantially over the past few years.

Although major labor market indicators are outperforming pre-recession levels, many Californians still struggle with unemployment and stagnant wages. This mixed picture is reflected in Californians’ views of the economy. According to the September 2017 PPIC Statewide Survey, 40 percent of Californians expect economic bad times over the next year, while 51 percent predict good times.

The California economy generally keeps pace with the US economy. Higher unemployment is explained by the state’s younger and faster-growing labor force, and the higher costs of doing business in California are typically offset by the state’s economic strengths. And both are likely to remain prominent features of the state’s economy.

Strong job growth in construction and services will continue, while manufacturing will stagnate

Recent employment growth has been led by construction, accommodation and food services, health care, and “other” services; these industries created 60 percent of the new jobs in California between October 2016 and October 2017. Local governments also contributed substantially to job growth, adding about as many new jobs as did the accommodation and food services sector. These industries are likely to continue leading growth through 2024. By contrast, manufacturing employment is projected to continue its sluggish growth pattern: its job-creation rate is expected to be only 1.3 percent by 2024. The professional services industry, which tends to employ college graduates and offers high wages, is likely to grow as fast as the accommodation and food services industry, where lower-wage work predominates. If this long-term trend of increasing disparity in employment opportunities continues, California’s income distribution will remain skewed.