Recession Far From Over in California

Revised job data suggest recovery could be more difficult than in the rest of the U.S. Some experts say there's no sign that a rebound has begun.

By Marla Dickerson
Times Staff Writer

March 1, 2003

California's latest recession has proved to be far deeper than previously estimated, the government said Friday, with job losses at the depths of the downturn reaching 290,000 -- nearly triple what state officials had reported.

The revisions by the state Employment Development Department show that the labor market was much weaker than previously realized between spring 2001 and early 2002, particularly in Northern California, in large part because of huge losses in the technology sector.

The new figures Friday suggest California's road to recovery could be more difficult than that of the nation. The loss of high-paying technology jobs has wreaked havoc on the state's tax revenues. With no tech rebound in sight, California will have a tougher time generating jobs and closing its projected $34-billion budget shortfall.

Revised jobless data also show that California officials understated unemployment rates in late 2002, with December's rate hitting a six-year high of 6.9%, up substantially from the 6.6% previously reported.

The statistics raise questions about the accuracy of the state's employment projections and cast doubt as to whether California's rebound has even begun. The state lost an additional 10,500 jobs in January, on the heels of a 29,500 loss in December, which was nearly double the previous estimate.

"I don't think we can even begin to say we're in a recovery," said Ted Gibson, former chief economist with the state Finance Department. "We appear to be skipping along the bottom."

Friday's revision was one facet of a major makeover for the state's employment reporting system. California, like other states, is now tracking jobs using the North American Industry Classification System, which was designed to give a better indication of how "new economy" industries are performing.

For example, California has lost 15% of its software publishing jobs since the sector peaked at 56,300 in March 2001. Another new category, Internet service providers, has declined by 34,300 jobs, or 41%, in the same period.

Analysts had suspected that California's job market was worse than what was portrayed by state officials. During the nation's recession, the Golden State was held out as an employment stalwart by Gov. Gray Davis' administration, which extolled the diversity and resilience of the state's economy despite troubles in its technology sector. But it now appears that California fared no better than the U.S. as a whole and actually may have performed worse. The state has shed 1.7% of its nonfarm payroll jobs since the recession began in March 2001, compared with a 1.4% decline nationwide.

"We knew a downward revision in the employment numbers was coming, but the magnitude is surprising," said Esmael Adibi, an economist at Chapman University in Orange.

The annual revision of the state's employment data, known to economists as the "benchmark," showed that job losses in Southern California were slightly bigger than previously estimated.

Statewide, the recession was cushioned somewhat by robust government hiring, largely in local education. But that wasn't nearly enough to offset what turned out to be a much more severe job erosion in Northern California. Santa Clara County, the heart of Silicon Valley, has shed more than 190,000 jobs since its employment peaked in late 2000. The San Francisco area, slammed by the dot-com collapse and a falloff in tourism, saw 145,000 jobs vanish over the same period.

The downward revision comes as no surprise to laid-off workers such as Jules Maciulis. Unemployed for 11 months, the 48-year-old former software consultant has moved in with his parents in Danville after exhausting his unemployment benefits.

"This is as bad as I've ever seen it," Maciulis said. "The situation is truly grim."

He is among those who say they have been puzzled by the state's fairly rosy employment estimates, given what they've seen in the trenches.

David Berger, chief financial officer for Castec Inc., a North Hollywood manufacturer of draperies, shades and window coverings, said his company has felt a slowdown in business. Burdened with spiraling workers compensation and other rising expenses, Berger said, his 400-employee firm is taking a hard look at costs and staffing levels.

"I kept wondering if it was some other industry" making California's employment numbers look so good in comparison with the rest of the nation, Berger said. "Because it sure didn't apply to us."

So how did state employment officials get the numbers so wrong?

The answer lies in the data that the Employment Development Department uses to estimate its monthly labor statistics, according to economists. The agency draws from a sample of about 40,000 companies to make projections about the number of jobs created or lost, using criteria set by the U.S. Bureau of Labor Statistics. Analysts say that sample misses much of the activity occurring in small firms, which tend to add jobs more quickly during boom times and shed jobs more rapidly during busts.

The same thing happened during the deep recession of the early 1990s, when California lost more than 500,000 jobs, a stunning decline that wasn't initially recognized by the state's tracking mechanism.

"They underestimate the losses during a downturn and miss many of the jobs gains on the upside," Adibi said. "It's no conspiracy or anything. It's just the way the sample works."

Nonetheless, the Davis administration has been criticized for underplaying the extent of the state's economic woes as the governor was gearing up for reelection in 2002. State officials denied that the administration had any role in the understatement of California's job losses.

"The survey data can only identify trends," said Loree Levy, a spokeswoman for the state employment agency. "It can't establish the true depth of an economic shift."

Economists said the revised job numbers bring California's employment picture in line with other data showing the state still mired in an economic slowdown. The big question now is how the state will dig itself out of its deep jobs hole, with the all-important tech sector still in the doldrums.

The labor data "doesn't change the challenge confronting California. It just confirms what we've been hearing anecdotally," said Mary Daly, an economist with the Federal Reserve Bank of San Francisco. "California has a tough row to hoe."