California’s job engine is slowing as U.S. nears recession, UCLA predicts

California’s low unemployment rate should persist through the next two years, but the state’s generation of new jobs will lose steam, a new UCLA economic forecast predicts.

“The California economy is slowing down,” wrote Jerry Nickelsburg, director of the UCLA Anderson Forecast, released Wednesday. “The state is, quite simply, running out of people to be employed.”

Although inland regions continue to lag behind coastal areas, and the impact of the trade war with China is beginning to be felt, “economic prosperity has clearly become the norm in California today,” the 138-page report concluded.

The forecast calculates that California’s average unemployment rate, which climbed by one-tenth of a percentage point to 4.3% in the last quarter, will rise slightly to an average of 4.6% in the first quarter of 2021.

For the entire years 2020 and 2021, the UCLA economists expect average jobless rates of 4.3% and 4.4%, respectively.

According to the U.S. Bureau of Labor Statistics, the number of Californians employed now stands at a record level: 18.7 million, 17% higher than in the trough of the recession in February 2010. That’s 10.2% higher than the previous peak employment and about the same as in April of last year, Nickelsburg wrote.

Payroll jobs are expected to grow at a 1.4% rate this year, down from 1.6% in 2018. In 2020, hiring will slow to 0.8% and in 2021 to 0.6%, the UCLA economists predict.

Real personal income growth in the Golden State is forecast to be 2.9% this year, dipping to 1.9% in 2020 — tracking a predicted slowing of the U.S. economy — before rising slightly to 2.1% in 2021.

The numbers reflect “a changing mix of employment in California and tight labor markets in high-wage occupations,” the forecasters wrote.

Some sectors grew a lot faster than others from April 2018 to April of this year. Professional, scientific and technical jobs, healthcare and social service employment, and transportation, warehouse and utilities all recorded 3%-plus job growth.

Four categories lost jobs in the state: finance, federal government, wholesale trade and nondurable goods.

Several sectors recorded wage growth higher than 1.5%: healthcare and social services, leisure and hospitality and administrative services, where pay is below the statewide median for all jobs; and professional, scientific and technical services, construction, durable goods manufacturing, and trade, transportation and warehousing, which all pay above the median.

Job growth was uneven across the state. Regions that grew faster than the U.S. average of 1.76% included San Francisco, Silicon Valley, the San Joaquin Valley, the Sacramento area and the Central Coast. Slower-than-average growth was recorded in the East Bay, the Inland Empire, and in Los Angeles, San Diego and Orange counties.

Despite the strong 3.1% growth of the U.S. economy in the first quarter, the UCLA forecast said much of the data behind that number offered “little reason to celebrate.” UCLA economist Edward Leamer pointed to weak residential construction, investment in homes and apartments and investment in software and intellectual property research — as well as the inverted relationship of 10-year and three-month Treasury bond yields — as factors that raise the likelihood of a national recession.

The effect of the 2019 first-quarter data is to “increase the recession probabilities from near zero to 15% for the next year and to between 24% and 83% for the year after that,” Leamer wrote. “Don’t worry about the coming year; worry about the year after that.”

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