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Labor Shortages Weigh on California Metro Areas

February 13, 2018
By Robert A. Dye, Ph.D., Daniel Sanabria

The California economy accelerated into the end of 2017 with state real GDP growth expected to come in above 3 percent in Q4. Along with solid GDP growth came higher than expected job growth in the final months of the year. We expect the strong job growth at the end of 2017 to fade by 2019. Looking ahead, labor scarcity will be an increasing drag on job growth, particularly in Northern California. The state’s major metropolitan areas are experiencing the tightest labor markets in decades. The Bay Area, which was the job growth leader following the recession of 2008-2009, has seen annual job growth slow near the U.S. average since peaking in 2015. The unemployment rate for the San Francisco MSA fell to 2.9 percent in December 2017, indicating very little available labor for business expansion. In Southern California, job growth dipped below the U.S. average for the Los Angeles and San Diego metro areas last year. L.A.’s unemployment rate fell to 4.1 percent in December 2017, the lowest in recent history since 1990. San Diego’s unemployment rate fell to 3.5 percent in December, approaching its historical low of 2.9 percent from August 1999. The Inland Empire is an outlier for the state, with job growth almost twice the national average at the end of 2017. Recent trends in net migration show no relief in sight for California’s tight labor markets. In-migration appears to have moderated through 2015 and 2016. This will keep population, and importantly, labor force growth, constrained. We expect the negative component of net migration, out-migration away from the state, to increase as retirees and others relocate to areas of higher affordability. 

For a PDF version of this report click here: CA_Outlook_0218

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