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California’s Economic Recovery Slowing Down



California's unemployment rate, while continuing to drop, is still the 41st highest among the states, says Dan Walters. (AP File Photo/Rich Pedroncelli)
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The good news about California’s economy is that it is still recovering from the very severe recession that hit the state in 2020 as Gov. Gavin Newsom shut down much of the state’s business to battle COVID-19.

The not-so-good news is that the state still hasn’t recovered all of the two-plus million jobs that disappeared when employers closed their doors and its unemployment rate, while continuing to drop, is still the 41st highest among the states. In fact, at 4.2%, it’s slightly higher than Texas’ jobless rate and 50% higher than Florida’s, two states that Newsom takes delight in needling.

The least positive news about the state’s economy is that the rate of employment gains is slowing as many employers pause hiring due to widening fears that the nation is on the cusp of a new recession.

Dan Walters



The nation’s economic growth has been negative for the past two quarters, in part because the Federal Reserve System has raised interest rates to counteract inflation, which has soared to record levels in recent months, and has signaled an intention to hike the rates even further.

Newsom has habitually issued extravagant boasts about the monthly employment reports. In June, for instance, his office declared that “California reduces unemployment to pre-pandemic levels, has created more jobs over the past year than any other state.”

In contrast, Newsom’s response to last week’s report was tepid, saying only, “California adds jobs for the ninth consecutive month while unemployment rate continues to decline.” It indicated that Newsom knows that job growth is slowing.

“After an impressive start to the year, in which the state added jobs at a rate 20% higher than the rest of the nation, we shouldn’t overinterpret a slowdown in one month,” Taner Osman, research manager at Beacon Economics and the UCR Center for Economic Forecasting, said in an analysis of the employment data released last week.

Osman also noted that while employers must also deal with a stubborn shortage of applicants for vacancies they already have. He warned that “California’s tight labor market has not eased up and will continue to act as a constraint on job growth.”

California’s labor force — the number of people working or looking for work — is about 200,000 workers smaller than it was in February, 2020, just before the pandemic-induced recession struck.

Another sign of a slowdown in California’s recovery is that personal income tax revenues in June were $3.3 billion under the state budget’s forecast for the month. The shortfall appears to largely stem from sharp declines in the stock market earlier in the year.

The state’s 2022-23 budgetapproved last month, is based a projected $97 billion surplus, which is being allocated to schools and a raft of new and expanded programs. However, if recession fears become a reality, that cornucopia of revenues could vanish.

Personal income taxes are about three-quarters of the state’s general fund revenues, and nearly half of them are paid by the top 1% of tax filers, whose taxable incomes are largely tied to gains in stocks and other investments. Their incomes were largely untouched by the pandemic recession but could decline sharply in a more conventional economic downturn, hitting the state treasury hard.

All-in-all, the signs of a slowdown in California’s economy abound but we don’t know whether it’s just a temporary blip or the beginning of a serious downturn born of global shortcomings in the flow of goods, high inflation, rising interest rates and shortages of workers.

After all, we are not an island.

About the Author

Dan Walters has been a journalist for nearly 60 years, spending all but a few of those years working for California newspapers. He began his professional career in 1960, at age 16, at the Humboldt Times. For more columns by Walters, go to

Dan Walters has been a journalist for nearly 60 years, spending all but a few of those years working for California newspapers. He has written more than 9,000 columns about the state and its politics and is the founding editor of the “California Political Almanac.” Dan has also been a frequent guest on national television news shows, commenting on California issues and policies.

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