State Job Growth Outpaces Nation; Inland Lags Behind Tech-Driven Coastal Areas

The state’s economic recovery has been extremely uneven, with the strongest growth coming along the coast, particularly in areas benefiting from the state’s leading position in the rapidly growing information technology and life sciences sectors, according to the latest quarterly report from the California Chamber of Commerce Economic Advisory Council.

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Overall economic conditions, however, encompass a sizable divide between the stronger-growing metropolitan areas along the coast and the slower-growing inland areas. Every metropolitan area has shown improvement over the past year and gains have been significantly more even than in prior years. The state’s economy continues to be driven by information technology, life sciences and tourism, which tend to be focused in and around the larger metropolitan areas along the coast.

The state’s large agriculture sector once again had to contend with the drought, along with the added pressures of weaker global economic growth and a stronger dollar. Despite these challenges, farm income has held up relatively well and the state’s farm sector had a fairly good year on an overall basis.

Interest Rates

The Federal Reserve finally moved forward with its plans to begin normalizing interest rates in mid-December by raising the federal funds rate by one-quarter percentage point. The Fed also noted in its policy statement that it intends to gradually raise interest rates over the course of 2016 and 2017, pushing interest rates up by about one percentage point each year.

Rising interest rates typically serve as a brake on economic activity and there is some evidence activity may already be cooling off in anticipation of the Fed’s move. Expectations for higher interest rates have pushed the dollar higher against most major foreign currencies and have pulled commodity prices lower.

The rise in interest rates and expectations for additional rate hikes in coming years raises risks for the California economy in the coming year. Recently, hiring in the Golden State has risen at a pace one-and-a-half times stronger than the rest of the country.

Employment Up

The Golden State has added 464,000 net new jobs from October of last year on a nonseasonally adjusted basis. Gains have been broad-based across a majority of industry sectors.

California’s steady pace of hiring has pulled the state’s unemployment rate down below 6% to 5.8% in October, its lowest reading since October 2007. On a year-to-date basis through October, the largest gains have been seen in the professional and business services sector, which added 130,000 new jobs.


This comes as no surprise, as employment in professional and business services includes many of the industry groups from the state’s rapidly growing tech and life sciences sectors. Employment in professional, scientific and technical services, which includes software engineering, computer system design, and scientific research and development, rose 6.2% over the year, an addition of 74,300 jobs. The bulk of this gain has been in San Francisco, San Diego and Los Angeles.

Hiring has ramped up considerably in California’s technology sector in recent years. The San Francisco Bay Area continues to benefit from the growth of new innovative enterprises.


Tourism is another bright spot in California’s economy. Hotel occupancy rates and revenue per available room (RevPAR) have risen across the state.

The San Francisco Bay Area, Santa Rosa, and Napa Valley areas saw the highest occupancy rates in September, reporting rates of 86%, 85.6% and 84.4%, respectively. The state as a whole posted a 77% occupancy rate, much higher than the national average of 67.9%.

Visitors continue to flock to California’s major metropolitan areas. Air traffic through Los Angeles International Airport rose solidly this year, with domestic traffic rising 6.1% and international traffic climbing 13.4%. San Francisco International Airport has also seen increased traffic, as domestic deplaned passenger counts rose 6% and international deplaned passengers rose 8.9% over the year. Passenger traffic was also up in San Diego, San Jose and Oakland.

Growth has fueled hiring in the leisure and hospitality sector, which is likely to continue as plans are currently in the works for expansions at several theme parks as well as a number of new hotels.


Housing remains a significant challenge for California. Home prices have continued to rise much faster than income, creating a large affordability hurdle for many homebuyers. According to the California Association of Realtors, the median single-family home price in California rose 5.6% year over year to $480,630 in October.

There have been signs of slowing price appreciation more recently in the month-to-month data; weaker global economic growth is likely beginning to weigh on foreign demand. California home sales have ramped up over the year, with existing single-family home sales up 5.8% over the year on a three-month moving average basis.

Residential construction also is on the upswing. Single- and multifamily housing permits have made notable gains and are currently at post-recession highs. A significant portion of growth has come from apartments, particularly in the San Francisco Bay Area and Los Angeles.


Four years into the drought, California’s agriculture sector has weathered the situation relatively well. Strong overall demand for California-grown fruits, nuts and vegetables has aided the farm economy through one of the most difficult operating environments in its history.

While farm receipts have held up well on an overall basis, costs have increased dramatically for many farmers and prices for some key products, most notably dairy, remain under considerable pressure. Diminishing water reserves and the stronger U.S. dollar have added to the hardships farmers face.

According to the latest drought impact report from the University of California, Davis Center for Watershed Sciences, by year end, the state’s agricultural economy will have lost about $1.84 billion and 10,000 jobs as an effect of the drought.

The drought has caused famers to cut back acreage, particularly on water-intensive crops. The U.S. Department of Agriculture (USDA) reported that California cotton production has declined for four consecutive years to an estimated 516,000 bales in 2015, about one-third of the production levels seen in the mid-2000s. Limited acreage has subsequently led to a decline in crop value.

Conclusion and Outlook

The Economic Advisory Council expects California’s good fortune to hold for at least another year. Employment gains may moderate somewhat, however, as access to capital begins to tighten a bit amid rising interest rates.

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The California Chamber of Commerce is the largest, broad-based business advocate to government in California, working at the state and federal levels to influence government actions affecting all California business. As a not-for-profit, we leverage our front-line knowledge of laws and regulations to provide affordable and easy-to-use compliance products and services.