There’s more to the economy than unemployment rates – Orange County Register

By Manfred W. Keil and Robert Kleinhenz | Inner Empire Economic Partnership

It took a few months for the Golden State to take the lead, but we finally did: in February 2024, California finally caught up to Nevada and we are now the state with the highest unemployment rate in America, at 5 .3%. This is not a typical scenario, and we need to look back to the dividends of the end of the Cold War or the coronavirus shutdown, when our home state bore that distinction. Other states with high unemployment rates include Washington on the West Coast, Connecticut and New Jersey on the East Coast, and Illinois in between. Which states are at the other end? North Dakota at 2.0% and South Dakota at 2.1%.

The national unemployment rate stands at 3.9%, significantly lower than California’s. However, the 1.4% gap between the national and state rates is consistent with historical averages, meaning that while it is unusual to find California leading the pack, it is quite common to place it among the first three. This can be attributed in part to differences in industrial composition between economies and to socio-economic factors. Ignore differences in seasonal factors since the data we focus on is reported with typical seasonal fluctuations filtered out.

Unemployment rates also vary widely across the state. Of California’s 58 counties, the highest unemployment rates are in Colusa County (20.4%) and Imperial County (17.2%), with the latter generally having the highest rate among the regions of the country. Riverside and San Bernardino counties, which make up the Riverside-San Bernardino-Ontario or Inland Empire metropolitan statistical area, are in the middle of the pack at 22nd and 20th places with rates of 5.6% and 5.4%. respectively. These rates are higher than a year ago.

So how bad is it? Ranking states and regions from high to low is interesting, especially since it usually results in policy statements focused on those extremes. However, from an economic perspective, it is more important to understand the “why” than the “what”.

Unemployment rates are determined by dividing the number of unemployed people by the labor force, which is made up of both employed and unemployed people. The unemployment rate decreases if employment growth is positive as long as the labor force does not increase. In fact, it will decline as long as employment growth exceeds labor force growth. On the other hand, the unemployment rate will increase even if employment does not decrease or even increase, provided that the labor force increases further. In general, employment growth greater than that of the labor force is a sign of a relatively healthy economy, but when the labor force and employment decline, the economy slows or contracts, even if the rate of unemployment decreases. It’s not healthy. In the case of California, the recent weakness in job growth is notable.

Let’s look at the Inner Empire.

At 5.5%, the Inland Empire’s unemployment rate is up 1.1 percentage points from February 2023. It is also 1.6 percentage points higher than February 2020 (3. 9%), the month before the start of the pandemic. This doesn’t sound good, but the explanation is that our labor force increased by 65,000 people – perhaps because more discouraged workers decided to look for work again or because of the exodus from coastal areas – while employment is 27,000 workers higher. Taken together, these numbers paint a picture of a growing economy even as the unemployment rate has risen. Additionally, employment has increased despite recent high-profile job cuts in the logistics sector (transportation, warehousing, wholesale), meaning growth in other sectors is making up for lost momentum as that the logistics sector is slowing down.

The story is different elsewhere in Southern California.

Los Angeles County has the worst record. It experienced a sharp drop in employment of 6%. If the labor force had not declined by nearly the same amount (5%), Los Angeles County’s unemployment rate would have increased by the same amount and would now stand at 11.3% instead of 5. 0% apparently normal. It was “saved” by a combination of emigration and people leaving the labor market. Orange and Ventura counties did a little better, but also ended up with declining employment and a shrinking workforce.

So what is the situation in California?

The labor force is still 1% below its February 2020 level, while employment is 2% below its pre-pandemic level. In absolute terms, employment is down by 410,000 and the labor force is 243,000, almost a quarter of a million fewer than before the pandemic. California’s unemployment rate now stands at 5.3%, up from 4.4% in February 2020. Like Los Angeles County, the state’s job market has been affected in recent years by a shrinking workforce, due to retirements or departures from the labor market, and emigration, as evidenced by population figures in recent years.