Persistent Risks to California Manufacturing Employment

California employment growth moderated in 2016. Employment data showed that California total nonfarm payrolls were up by 2.0 percent, or 332,500 jobs, in the 12 months ending in December. The first read on full-year 2016 California jobs numbers is positive, yet overall job growth moderated from 2015 when the state added 483,000 jobs. Most major sectors saw a slowdown in employment in 2016, except for the government sector, which actually increased. California’s manufacturing sector saw declines in jobs, down 7,600 jobs in 2016.

The Trump Administration has made growing manufacturing jobs in the U.S. a priority since taking office. However, we expect this objective to be particularly challenging for California manufacturers due to high costs of land, labor and the high regulatory burden. Most industries are tied to geographical areas; what economists refer to as industries of agglomeration. This includes access to things like ports, materials and workforce talent. The established infrastructure for the high-tech, bio-tech and defense manufacturing industries in California encourages businesses to remain in the state. However, the higher costs encourage state manufacturers to either automate or move operations out of state, ultimately pushing down manufacturing employment. A higher tax savings and increased federal spending on defense related manufacturing could boost California’s manufacturing jobs in the near term. However, the share of California manufacturing to overall California employment is on a two-and-a-half decade slide from 15.8 percent in 1990 to 7.7 percent in 2016 and this longrun trend is unlikely to change.

For a PDF version of the complete California Economic Outlook, click here: CA_Outlook_0217.

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