California’s unemployment rate ticked down to 4.1% in September from 4.2% the previous month — the lowest level in 42 years, according to the state’s Employment Development Department.

Payrolls in the state grew by a modest 13,200 jobs compared with August, with the most gains coming in the business and professional services sector, the leisure and hospitality sector and the government sector. Compared with the same month last year, payrolls were up 2%.

The data show an economy that has climbed back from a catastrophic recession, even as it faces new challenges with an escalating U.S.-China trade war, labor shortages and high housing costs that have left many residents in poverty.


“September’s jobs report indicates that California’s economy remains strong,” said Lynn Reaser, chief economist of the Fermanian Business & Economic Institute at Point Loma Nazarene University. “It will, however, face the headwinds of rising interest rates and the repercussions of trade tensions with China and also possibly Europe in the period ahead.”

While last month’s payroll gain was the smallest since May, it followed a large gain in August, revised down slightly to 42,600. In the third quarter overall, employers created more than 90,000 jobs compared with an average of about 55,000 jobs during each of the first two quarters of the year.

Compared with the same month last year, California payrolls were up by 339,600 jobs, a gain of 2%. The state outpaced the nation in year-over-year job growth for the 79th consecutive month, since early 2012.

Nonetheless, September losses in manufacturing, down 1,500 positions, and in construction, down 2,000 jobs, were “worrisome,” said economist Sung Won Sohn, president of SS economics, a Los Angeles consultancy. The trade war has meant factories are paying more for Chinese-made parts, and “the worst is yet to come,” he predicted.


President Trump has imposed tariffs on $250 billion worth of Chinese goods and has threatened to tax an additional $276 billion of goods. China has responded with duties on $60 billion of U.S. products.

Year over year, the manufacturing sector added just 400 positions, as industries such as apparel, electronics and auto parts continued to expand outside the country.

Although construction rose 4% year over year, Sohn said rising mortgage rates and high home prices “have sapped the housing industry. Both the construction of new homes and remodeling has been diminishing.”

The information sector, which includes jobs in telecommunications, data processing and motion picture recording, declined by 3,000 jobs in September.


California’s healthcare and educational services sector shrank by 3,700 jobs in September, but it has shown healthy growth of 2.9% year over year.

The largest payroll gains in September were in business and professional services, up 11,800 jobs, followed by leisure and hospitality, up 8,500, and government, up 5,100.

Regionally, growth was mixed, noted UC Riverside economist Robert Kleinhenz. September payrolls expanded in San Diego County (up 3,100) and the Inland Empire (1,900), while payrolls declined in Orange County (down 2,600) and Los Angeles County (400).

Year over year, the Inland Empire added jobs at the fastest rate, 3.3%, followed by San Diego (2.0%), Los Angeles (1.2%), Ventura (0.9%) and Orange (0.5%) counties.


California’s unemployment rate was driven down by the booming Bay Area economy. The jobless rate is below 2.5% in San Francisco, San Mateo, Santa Clara, Marin and Sonoma counties.

In Los Angeles County, unemployment rose slightly to 4.6% in September, up from 4.5% the previous month. The county added a net 21,600 jobs, driven by an upsurge in government employment as teachers returned to work at the start of the school year.

One important trend, according to Michael Bernick, a former director of the state Employment Development Department, is playing out in the Central Valley and rural areas of the state.

“These counties have had unemployment rates over 8% for most of the past decade,” Bernick said. “This past month, Fresno is down to 5.9%, Madera at 5.4% and Merced at 5.4% in the Central Valley. Kern is at 6.6% and San Bernardino is down to 3.8%.”


In California, average hourly earnings were estimated at $31.32 in September, a year-over-year rise of 3.6%, according to the U.S. Bureau of Labor Statistics. However, much of the gain was eaten up by inflation: The consumer price index for the Western United States rose by 3.4% over the same period, according to the Bureau of Labor Statistics, which does not track state-by-state inflation.

“The good news on unemployment comes as rising home prices and rents are still outpacing income gains for many residents,” said economist Stephen Levy, director of the Palo Alto-based Center for Continuing Study of the California Economy. He cited an urgent need for the state to build more homes, especially for low-income residents.

California’s labor force — the number of people who are employed or looking for work— has stagnated over the last year, reflecting in part the retirement of baby boomers and an out-migration of Californians to other states due to the high cost of housing, Reaser said.

But the labor force has begun to show growth, surging by 34,300 between August and September.


“The word is out that there are good jobs at decent wages to be had,” Sohn said. “Businesses are having difficulty finding workers from Silicon Valley to Southern California. Fortunately, part-time workers, discouraged people and those on disability are rejoining the labor force, alleviating labor shortages at least temporarily.”

Nationwide, the unemployment rate stood at 3.7% in September.

UPDATES:

2 p.m.: This article was updated with additional wage and labor force data.


12:45 p.m.: This article was updated with additional county-by-county data and analysis.

This article was originally published at 9:55 a.m.