Unemployment Rate in California Dips to 6.3% in May but Payrolls Fall

California’s unemployment rate dipped to 6.3% in May, providing further evidence that the state’s economy is on the mend.

That’s down from a revised 6.5% in April and better than some analysts had expected.

But the number of workers on business payrolls--the most reliable measure of the labor market’s health--declined by 9,000 jobs last month, a sign that job hunters aren’t feeling the recovery.

Under pressure to improve profitability and unsure of the economy’s pep, many companies aren’t hiring. The result is a recovery in the Golden State that is lacking job creation.

Through the first five months of the year, California has added 2,500 net new jobs, leaving the state with 51,000 fewer payroll positions than it had a year ago and nearly 71,000 fewer than the pre-recession peak of January 2001. California’s unemployment rate improved last month partly because some discouraged workers dropped out of the labor force and thus are no longer counted in the jobless statistics.

“No one wants to be the first to go out and hire if competitors aren’t doing it,” said Tom Lieser, senior economist with the UCLA Anderson Forecast.

The state’s unemployment rate could increase in coming months as students looking for summer employment swell the ranks of job seekers competing for work in a sluggish labor market, Lieser said. The good news, he and others said, is that California’s employment picture appears to have stabilized. Steep losses in the Bay Area’s tech sector are leveling off, while Southern California’s diverse economy continues to create new jobs, albeit at a much slower pace than during the height of the economic boom.

“We’re on a path that’s sustainable,” said Mark Schniepp, director of the California Economic Forecast Project in Santa Barbara. “The real news is that things aren’t getting worse.”

The May drop in California’s unemployment rate mimicked that of the nation, which dipped to 5.8% in May from 6% in April. A year ago, the nation’s unemployment rate stood at 4.4%, while California’s was 5.1%.

Southern California continues to post some of the lowest unemployment rates in the state. Orange County’s jobless rate fell to 3.6% in May, down from 3.8% in April. San Diego County showed a similar decline, to 3.7% from 3.9% in April. The Inland Empire saw unemployment in Riverside and San Bernardino counties slide to 5.1% in May from 5.3% the month before, and Ventura County’s rate declined to 4.2% from 4.5%. Unemployment in Los Angeles County remained well above the state average, dipping to 6.8% in May from a revised 6.9% in April.

Still, L.A. County led the pack in job creation, adding 8,800 jobs last month. The six Southern California counties combined saw nonfarm payroll employment increase by nearly 21,000 in May.

Statewide, only two industries--services and government--managed to add jobs during the month. But that 9,600 job gain was more than offset by 18,600 job losses in construction, manufacturing, transportation and public utilities, wholesale and retail trade, and finance, insurance and real estate. Construction posted the largest decline, down 9,600 jobs, reflecting a drop-off in commercial and industrial construction, said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange.

“Vacancy rates are up,” particularly in office markets such as San Francisco, Adibi said. “That’s why we’re seeing a slowdown of building activity in that sector.”

Manufacturing posted its 15th straight decline with a loss of 5,000 jobs in May.

But the pace of the losses has slowed substantially from last year, and experts said the worst is over. Government figures released Friday show that industrial production rose 0.2% in May, its fifth consecutive monthly increase. In what could be a hopeful sign for Northern California’s tech industry, computer output rose 0.6% in May, while semiconductor production jumped 2.2%.

It’s “an excellent sign that business investment is beginning to pick up,” said Sung Won Sohn, chief economist at Wells Fargo & Co.

Meanwhile, signs are emerging that consumers, whose strong spending has kept the downturn relatively mild, are beginning to lose optimism.

The University of Michigan’s preliminary June consumer sentiment index, released Friday, took its biggest tumble since the Sept. 11 terrorist attacks. Likewise, government figures released earlier this week showed retail sales declining an unexpectedly large 0.9% in May.

Still, some analysts expect consumer demand to stabilize, helping the manufacturing sector to pick up momentum as the recovery rolls forward.

“Consumers clearly are in the process of hibernation, pausing after a very robust pace of spending,” economist Sohn said. “It is a soft patch which will not last. We will get back onto firm ground once we get through the second quarter.”

The unemployment rate for California’s Latinos declined to 7.4% in May from 7.5% in April, while that of blacks rose to 10.3% from 10.1%. Whites held stable at 5.6%.

San Luis Obispo County posted the lowest unemployment rate of all California counties at 2.6% in May, while Imperial County recorded the highest at 16.2%.

Bloomberg News was used in compiling this report.