California’s unemployment rate held steady in January as the nation’s most populous state added 53,600 jobs in a sign the economy is slowly returning to pre-pandemic levels.
But soaring inflation over the past year, combined with rising gas prices caused by uncertainty over the Russian invasion of Ukraine, could quickly slow the state’s growth because people are likely to spend less as prices go up.
The latest numbers released Friday show California outperformed the rest of the nation in job growth last year, posting a 7.4% increase compared to the national average of 4.6%. California has now regained 82% of the roughly 2.7 million jobs the state lost in March and April 2020, when Gov. Gavin Newsom issued the nation’s first statewide stay-at-home order that forced many businesses to close because of the pandemic.
“Our approach has been to follow the science while supporting those hardest hit by the pandemic, and it not only saved tens of thousands of lives – it got our state back to work faster and better than the rest of the country,” Newsom said Friday in a news release.
California still has a worker shortage. The state’s labor force, defined as people either working or actively looking for work, is still 452,000 below where it was this time last year. Fewer workers have caused some companies to increase wages, particularly in the trucking industry as businesses scramble to keep up with demand.
Truckers had the biggest job gains in California in January, responsible for most of the 26,600 new jobs in the trade, transportation and utilities sector, according to the California Employment Development Department. In all, eight of the state’s 11 industry sectors added jobs in January — a strong month given the omicron variant of the coronavirus was still spreading at the time.
“We have gotten back nearly all the jobs we lost during the pandemic, but there are these two big changes. One is the structure of remote work is here to stay, and, two, we still have people on the sideline,” said Michael Bernick, a former director of the California Employment Development Department who is now an attorney at Duane Morris.
But those higher wages for workers has been offset by rising prices. Nationally, consumer prices increased 7.9% over the last year, the biggest increase since 1982. The average gas price in California on Friday was a record $5.72 a gallon, according the motoring group AAA.
Sung Won Sohn said California’s growth in its gross domestic product needs to stay at about 2.5% or higher to keep the unemployment rate stable. He expects the state could be entering a period of slow economic growth — around 2% or less — while prices continue to rise, a phenomenon known as “stagflation.”
“I don’t want to use the term ‘recession,’ but we should not rule out the possibility of the economy getting much worse, especially if the price of oil goes above $150 a barrel and stays there,” Sohn said.
The economic uncertainty has so far not impacted California’s tax revenues. The latest forecasts from the nonpartisan Legislative Analyst’s Office says there is a “very good chance” tax collections will come in much higher than expected this year, with somewhere between $6 billion and $23 billion in extra money.
During his annual State of the State address on Monday, Newsom proposed giving taxpayers a rebate to help offset the high cost of fuel. Democratic leaders in the state Legislature have also said they are considering some type of tax relief this year given California’s anticipated large surplus.