California recovers its 2020 recession job losses
The 2.7 million California jobs lost in the 2020 recession have officially been restored.
In October 2022, California added 56,700 new jobs and surpassed the jobs lost in spring 2020 by 1%, according to the California Employment Development Department (EDD).
During October 2022, the U.S. overperformed on expectations, gaining 261,000 new jobs even as the Federal Reserve (the Fed) tackles inflation with multiple rounds of interest rate hikes, according to a Bureau of Labor Statistics (BLS) report.
Officials at the Fed are eager to see signs of a softening labor market and subsiding wage growth in order to contain inflation.
Also in October 2022, the Consumer Price Index (CPI), a core measure of inflation, increased 7.7% year-over-year. October 2022 had the lowest annual rate of inflation since January 2022, as reported by the BLS.
This is a far cry from the Fed’s target inflation rate of 2%. Consequently, the Fed raised its benchmark interest rate another 0.75% in November 2022 — marking the fourth hike of this magnitude this year. The most recent hike puts the federal funds rate between 3.75% and 4%.
Though the Fed wants wage growth to weaken, wages have been stubbornly resilient. Year-over-year wage growth peaked at 6.7% for three consecutive months in mid-2022 before falling to 6.3% in September. This figure ticked up to 6.4% in October 2022, according to the Federal Reserve Bank of Atlanta.
However, annual wage growth still falls beneath annual rates of inflation. Thus, incomes aren’t keeping up with the rising costs of goods and services. Consumers have less to spend on the local economy — especially the housing market.
Related Video: November 2022 Monthly Statistical Update: 2023 recession demands discipline from investors
Click here for more information on current California market trends.
What recession?
The U.S. economy experienced two consecutive quarters of declining gross domestic product (GDP) in 2022. Though this is a layman’s term for a recession, the National Bureau of Economic Research (NBER) has avoided a formal announcement.
One reason the NBER hasn’t declared a recession is because the labor market has been so strong, as reported by Markets Insider.
A robust jobs market under current conditions is a double-edged sword.
Consider the pros of a robust jobs market in 2022. Hardy employment:
- defers the formal declaration of a recession;
- maintains upward pressure on wages; and
- strengthens worker bargaining power since there are 1.9 job openings for every unemployed worker in the U.S. as of September 2022, according to the New York Times.
Now, consider the cons of a robust jobs market in 2022:
- substantial wage growth maintains high inflation;
- strong job reports keep the Fed raising interest rates; and
- higher interest rates in turn increase costs for companies.
While wage growth and multiple job prospects help individual consumers combat rising prices for goods, services and housing, it also contributes even more to inflationary pressures and leaves the Fed with no resort but to keep hiking interest rates.
Related article:
The future of jobs
California’s restoration of its jobs lost in the 2020 recession happened just in time for a more significant economic recession to tighten its grip on the jobs and housing markets.
With negative GDP in the first and second quarters of 2022, the encore to the 2020 recession is already here — an undeclared recession. Although the National Bureau Economic Research has yet to make a formal announcement, Californians can attest that the housing market recession has arrived.
Related article:
Economic recession or not, the housing market recession is here
Although it has recovered its pandemic job losses, California’s employment gains are tenuous. Agents watching their local service area’s employment figures need to prepare for additional job losses heading into 2023.
Home sales volume and home prices won’t begin a recovery from the downturn they are already entrenched in until the years following 2025. At that point, the economy will enter its next phase of expansion. [See RPI e-book Real Estate Economics, Factor 1: Jobs]
Sign up to receive weekly updates as the housing market recession stretches into 2023 — subscribe to firsttuesday’s weekly newsletter for agents and brokers: Quilix.
Related article:
Want to learn more about California employment and the connection it has to real estate? Click the image below to download the RPI book cited in this article.
