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State Jobless Rate Plunges to 7.7% : Economy: California is buoyed by brighter employment picture. But the speed, intensity of recovery remain uncertain. U.S. unemployment drops to 5.8%.


WASHINGTON — California's slow-blooming economic recovery gained speed in October as the state's jobless rate dropped to 7.7%, the lowest in nearly three years, the U.S. Labor Department reported Friday. Nationally, unemployment edged down one-tenth of a percentage point to 5.8%, the lowest level in four years.

U.S. employment continued to grow at a solid, if unspectacular, pace last month, adding 194,000 jobs.

But Friday's employment reports, which included news of rising wages, triggered deep fears in financial markets of renewed inflation. The Dow Jones industrial average slumped 38.36 points to 3,807.52, bringing its loss for the week to 123.14 points, the biggest weekly decline in more than two months.

Yields on the 30-year Treasury bond, a key indicator of inflationary sentiment, climbed to 8.15%, up from 8.10% and reaching the highest level in more than three years.

Strong economic growth nationally--by raising the likelihood the Federal Reserve will boost interest rates to prevent inflation--"is a risk to California, since we're just at the beginning of a recovery phase," said Larry Kimbell, director of the UCLA Business Forecasting Project.

Lynn Reaser, chief economist for First Interstate Bancorp in Los Angeles, agreed that California can't afford anything that will slow its comeback. "A modest recovery is under way, but it's not a rapid expansion by any means," she said.

The state's performance lags far behind the recovery that has stimulated job growth nationally. The nation has added nearly five million jobs since mid-1990, but by one estimate, California has roughly 400,000 fewer people at work today than four years ago.

Los Angeles County, which along with San Diego has been the weakest link in the state's recession-ravaged economy, is joining California's rebound--or, at least, bottoming out.

Los Angeles County's jobless rate fell to 7.8% in October, down from 8.3% in September, and the lowest level since April, 1992. October marked the second consecutive monthly drop, and a significant improvement in a jobless rate that averaged 10% the first eight months of the year.

"Los Angeles looks like it's flat or barely in recovery, while the rest of the state is definitely in recovery," Kimbell said.

Although most experts are confident that California's job situation is getting healthier, the true speed and intensity of the state's fledgling recovery still are being debated. And the latest reports intensified that debate.

On Friday, the Labor Department's survey of households used to calculate the jobless rate showed the number of Californians at work rising by 239,000 in October, bringing the gain over the last two months to more than 400,000.

But a sharply contrasting situation was portrayed by the federal government's companion survey of employer payrolls, which traditionally is considered the more precise yardstick of employment. It reported that the state's job total dropped by 7,900 last month.

Analysts increasingly believe that the true state of the state's economy lies somewhere in between the two monthly employment reports.

Other economic indicators, such as state tax receipts, auto sales, retail sales and housing permits "all are pointing toward a pretty good recovery," said Ted Gibson, principal economist for the State Department of Finance.

His office estimates that the state currently is gaining a moderate 15,000 jobs a month, and many economists agree with that general assessment.

Economists fault the payroll survey for failing to count jobs created at young firms founded since 1991. But they also believe that the household survey, which was redesigned at the beginning of this year, is overstating job growth and is not yet properly accounting for seasonal trends in the economy.

Still, analysts were encouraged by California's 7.7% jobless rate in October, down from 8.3% the month before. The state's rate has declined three months in a row, and is down from 9% in July.

"California is just coming around now," said Howard Roth, a senior economist at the Bank of America. "We bottomed much later than the rest of the country and are now just beginning to come back."

The defense and aerospace industries, so prominent in the state's economy, have finally stanched their "hemorrhage of jobs," said Labor Department official Thomas Plewes.

Nationally, there were broad gains in retailing employment, including jobs at auto dealers, furniture stores and general merchandise stores, according to Katherine G. Abraham, commissioner of Labor Statistics.

Across the country, just as in California, job declines are moderating in defense-related industries, she said.

Defense-related jobs were disappearing at the rate of 8,000 a month this year throughout the United States. But the losses slowed to 3,000 in October. Aircraft and parts jobs, dropping at the rate of 5,000 a month, declined only 1,000 last month.

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