Jobs could be harder to get in California. Is that trouble for the Newsom budget?

California’s unemployment rate has remained above the national average, and job growth in the state has been slowing. Predictions are that conditions will get worse.

“The job growth in California already has slowed considerably in 2023 from the previous two years, and it will continue to slow throughout 2023,” said Michael Bernick, a former California Employment Development Department director and now an employment attorney at Duane Morris LLP.

Later this week, Gov. Gavin Newsom plans to introduce a revised budget for fiscal 2024, which begins July 1. A gloomier employment outlook could have an impact on deficits and spending.

“Our view going into this budget process is to be mindful that we have made a stronger recovery out of the COVID recession, but there are real risks out here,” said H.D. Palmer, spokesperson for the Department of Finance.

Unemployment is one of the bigger risks.

“The state’s economy is heavily dependent on real estate, technology, agriculture and international trade. Unfortunately, all these sectors are suffering downturns,” said Sung Won Sohn, president of SS Economics, a Los Angeles-based consulting firm.

The path of both the state and national economy has been unusually unpredictable. The Federal Reserve’s series of increases in key interest rates over the last 14 months was designed to cool the economy and cut the rate of inflation.

While prices have stopped rising at last summer’s sizzling pace, the economy continues to perform fairly well. The national unemployment rate last month hit 3.4%, its lowest level in 54 years.

California’s latest reported rate was 4.4% in March, the same rate as in February. In March 2022 the rate was also 4.4%, but dropped slightly below 4% over the summer before climbing slowly again.

Bernick’s data show California averaged gains last year of over 51,000 jobs per month. While some unusual factors pushed January’s job growth to 96,700, it collapsed in February to about 21,800 and then 8,700 in March.

Bernick predicted a gain of about 25,000 jobs in April, but said “the slowing growth will continue, as the high interest rates, high inflation, business caution and declining consumer savings take effect.”

California employment has struggled to regain its pre-pandemic levels in the leisure and hospitality industry, which provides about 2 million jobs. March employment was slightly below levels in February 2020, the month before the pandemic hit the sector hard.

The sluggish growth has been concentrated largely in the Bay area and Los Angeles, said the UCLA Anderson School economic forecast in March.

It attributed the problem in part to the increase in remote work, which has kept demand for restaurants and bars down. Fewer foreign tourists are visiting, particularly from China.

The bigger risk to the state’s employment picture involves the broader economy.

The state’s independent Legislative Analyst’s Office cited a “presently heightened risk of recession” in its January report on the budget.

That warning came a week after Newsom proposed a $297 billion spending plan for fiscal 2024 that included a $22.5 billion deficit. With the economy and employment slowing, that deficit projection is expected to grow when Newsom releases his revised budget Friday.

Fewer California jobs?

Since the economy depends heavily on technology, trade and agriculture, as the economy slows analysts predict an impact on jobs.

“Technology was the backbone of the state’s economy, but layoffs are mounting and demand for their products softening,” said Sohn.

Drought and floods have affected agriculture and related industries, he said, and while California is a gateway for trade with Asian countries, “both political and economic problems (related to Covid) with China have slowed the Asian trade.”

But Somjita Mitra, California’s chief economist, said that a higher unemployment rate is “not necessarily a bad thing.”

She said it could indicate people returning to the labor force and looking for work. The state also has a more fluid economy in which workers switch jobs more frequently.

After an unprecedented pace of job recovery coming out of the pandemic, California’s unemployment has returned to a more “predictable level,” said Mitra.

While tech companies such as Meta, Lyft and Salesforce have laid off tens of thousands of employees in recent months, a relatively small number of the total cuts have targeted Californians, Mitra said. Those who do live here are expected to bounce back relatively quickly

“The workers themselves tend to be highly skilled, highly qualified and highly compensated, so as a result, they tend to be highly desirable workers,” Mitra said.

She added that “We’re monitoring very closely and if we start seeing some long-term unemployment, then we will start worrying about the health of the tech industry itself.”

Mitra cited other uncertainties, notably the fate of the federal debt limit and the rate of inflation. President Joe Biden and congressional leaders are deadlocked over how to raise the debt limit. The U.S. Treasury estimates that around June 1, it could lack the funds to pay all the government’s bills.