California Job Openings Near Record Levels

California Labor Market Among The Hottest

As of November 2022, there were 1.2 million available jobs in California, accounting for 8.8% of all job openings in the US. While this number has fallen by 91,000 since the March 2022 peak, it still demonstrates a robust—albeit gradually slowing—job market. Unfortunately, the BLS does not break this data out at the local market level, but any reading of the data supports a strong market for employment seekers in the Sacramento region.

Usa Job Openings By Profession

USA Job Openings by Profession

Service jobs, which include Leisure & Hospitality (1.5 million), as well as Retail Trade (900,000) combine for 2.4 million available positions. Should a recession occur, these two fields—typically among the lowest earning— would benefit from a weaker labor market.

The reality is that even with the growing economic clouds of the past year, every single major employment category in the US is in serious need of workers.

Wage Growth

Even as job openings continue to fall in the wake of economic uncertainty and the FRB’s moves to cool the economy to tame inflation (including the knowing impact on the job market), there have been few times in recent economic history where employment was as readily available to those seeking it as now.

According to the latest BLS JOLTS report, there were nearly 10.5 million available positions in the US as of November 2022. The adjacent graph breaks those job openings out by general profession. Though we anticipate these numbers to continue to shrink in the face of FRB rate hikes going deeper into 2023, the current levels of demand (even if they were to fall by 50%) would still suggest a relatively strong job market.

Healthcare and Education, clobbered by the pandemic, has nearly 2.1 million jobs available. Professional & Business Services isn’t far behind at just over 2.0 million available jobs. Add those to the other two categories of office-using employment and there are a whopping 2.7 million jobs available. Again, this will be a mitigating factor in office space givebacks in 2023—even though it may be a challenging year for that product type.

The immense tightness of the labor market has been one of the many driving forces behind recent inflation. As we discussed earlier in this report, there were multiple factors that played out simultaneously to bring us where we were and where we are now—which is improving but remains deeply challenging.

For the 20 years prior to the pandemic, the average annual wage growth of the American worker was 3.7%. Then came the whiplash of the devastation of pandemic lockdowns, followed by the firehose of federal aid, the stabilization of markets and then the explosion of spending as that aid trickled through every single level of the economy.

Starting in May 2021 (15 months from the beginning of lockdowns), we saw wage growth start to explode as labor demand skyrocketed. The reason was simple; 15 months out from the pandemic winners and losers had already been sorted out. And the winners needed labor and they needed it fast.

WAGE GROWTH CONT.

By August 2022, wage growth had hit 6.7% annual growth. Sadly, for workers who had enjoyed an unprecedented run-up of wage growth over the previous 16 months, this metric simply did not keep up with overall inflation during this period. Which is normal, because when employers must raise wages—they upwardly adjust prices. So, while the average American worker has received the most substantial raises in their wages in 30 years, it has all been gobbled up by cost-of-living increases. But it is critical to note that wage increases alone create inflationary pressures in the economy.

According to the FRB, year-over-year wage growth in December 2022 stood at 6.1%. While this was down from the August 2022 peak of 6.7%, it is still nearly double where the pre-pandemic average had been for two decades. With overall inflation down to 6.4% during the same time, we are witnessing something relatively rare— where total inflation has fallen below wage inflation.

Wage Growth (Y-o-Y)

US Personal Savings Rate

It is not likely to last for a long time. As overall inflation comes back to earth, as job openings also come back to earth (though at an elevated level), wage inflation is also likely to follow.

Given the complexities of the current economic situation, a return to past historical (and sustainable) norms, is likely a good thing for the overall economic outlook.

Us Personal Savings Rate

According to the FRB, from 2000 through 2020 the average American saved 5.9% of their monthly disposable income. That number skyrocketed to 33.8% in April 2020, as consumers fearful of the economic impacts of the pandemic engaged in widespread panic saving. The disparate impact of lockdowns meant frontline service workers felt the brunt of the challenges, while most professional positions simply adapted to working remotely.

As the early fog of pandemic lockdowns began to lift for most American workers, the savings rate slowly began to move back towards historic norms. The arrival of massive amounts of Federal aid in early 2021 saw the savings rates spike once again; to 19.9% in January 2021 and then again in March 2021 to 26.6% as waves of stimulus funds flooded the market. Meanwhile, a suddenly booming stock market and rapidly rising home values in the wake of the CoVid suburban exodus, suddenly meant that many Americans not directly impacted by lockdowns, were suddenly flush with cash.

This was one of multiple factors that led an 18- month surge in retail spending that only began to come back to earth in 2022 as inflationary pressures started to take their toll on consumer wallets. But while month-over-month retail sales have been on a slow trajectory downward over the final half of 2022 (typically averaging in the -1.0% to -1.5% per month range). Year-over-year metrics have remained elevated. While retail sales fell between November and December 2022, they remained up 6.0% over the same period a year before. Though slowing, retail sales have remained strong. But one of the reasons for this is that consumers have increasingly been dipping into their nest eggs to cope with the impact of 2022’s surge in pricing. The latest data available indicates that the US personal savings rate had dropped to just 2.4% in November 2022 and is likely to fall further. Though the consumer has remained resilient, the slow slide in retail sales is likely to accelerate over the first half of 2023. It’s performance over the final half of the year depends largely upon whether the trend of falling inflation can continue—particularly if the Fed can engineer a “soft landing” of the economy without tipping it into recession.

US Bank Deposits

into their savings to deal with the impacts of inflation.

HOW MUCH DO AMERICANS HAVE IN THE BANK?

The FRB tracks the amount of money held in U.S. banking and savings accounts. As of February 2020, Americans had approximately $13.5 trillion dollars in the bank. That number stayed flat in the initial days of the pandemic, but then began to soar as stimulus began to flow through every portion of the economy. The purchase of roughly $3 trillion in bonds by the Treasury Department in April 2020, stabilized the stock market and then set it soaring. Another $4 trillion in small business (forgivable PPP loans) and direct aid began flowing through the economy. And some industries (media, tech, etc.) simply boomed due to the nature of the crisis even as workers involved in retail, hospitality and travel faced outsized challenges. Meanwhile, rising home values bolstered the wealth of homeowners in virtually every US market. The net result is that by March 2022, Americans were sitting on a record $18.2 trillion dollars in their bank accounts. This windfall of more than $4.8 trillion dollars helped to fuel the record retail spending, stock market, business, and real estate investment that, in turn, ultimately became huge inflationary pressures.

Since March 2022, Americans have been dipping into those savings. As of January 2023, there was a total of $17.7 trillion in US bank accounts—reflecting a decrease of roughly half a billion dollars in nine months. While we anticipate inflationary pressures will continue to gradually bring this number back to earth, it is critical to note that these are still near record levels of wealth. Assuming we have turned the corner on inflation going forward, this metric bodes well for the economy. Whether 2023 brings a mild recession or a flat growth “no-cession” or “slow-session,” it will almost certainly be the American consumer that keeps the lights on.

Total Consumer Debt

Total Consumer Debt

On the eve of the pandemic, total outstanding U.S. consumer debt stood at $852 billion. In the initial wave of panic saving, we also saw a movement of debt paydowns driven largely by affluent consumers. Later, the impact of stimulus checks and the rising tide of stock market wealth and surging home values would see American consumers pay down record levels of debt. Between March 2020 and April 2021, Americans paid down over $120 billion in debt. However, this metric has been on the rise since December 2021 as inflation began to ramp up.

It's clear that the continued strength of retail sales heading into 2023 has not just been a reflection of the resilience of the consumer, but it has also been bolstered by rising levels of debt and declining levels of savings. According to the FRB, as of early January 2023, Americans were carrying $942 billion in debt. This metric could become problematic if it continues to grow at the current pace, but the consensus view among economists is that the banking system is on much stronger financial ground and facing nothing near the default exposure that spiraled out of control during the Great Financial Crisis.

One of the asset classes that felt the greatest surge in the post-CoVid economic whiplash was housing. From 2012 through the close of 2022, an average of 5.3 million existing homes sold monthly in the US. That number plummeted in the initial months of the pandemic to a low of just over 4.0 million units, but ramped up significantly by Q3 2020. From September 2020 over the next 18 months, buying activity surged well beyond historic norms—averaging more than 6,000 units per month for 14 straight months.

The trend was driven both by a surge in Millennial first-time home buyers (this demographic group alone accounted for roughly 40% of all buying activity), the movement of urban dwellers to the suburbs (driven primarily by Millennials) and the impact of huge amounts of capital in the system. Pricing spiked, with the national average peaking in June 2022 at 44.6% above where they stood before the pandemic (February 2020). It was only by the middle of last year that the impact of interest rate hikes by the FRB began to significantly slow buying activity and started to drive price declines. According to the National Association of Realtors, the average home price fell 3.0% between June and October 2022 (the latest data available) but is continuing to trend downwards. However, prices remain roughly 40% above where they were before the pandemic.

The FRB had been keeping the Federal Funds Rate near zero (0.25% to 0.50%) until as recently as March 2022 though inflationary concerns had been growing over the final half of 2021. Since then, they have embarked on the most aggressive rate hikes in their history. Over the course of 2022 they raised the rate 425 basis points. By the end of last year, the Federal Funds Rate stood between 4.25% and 4.50%. This effectively doubled the interest rate on the average 30-year fixed rate mortgage.

The average interest rate had reached as low as 2.65% as of January 2021 but market pressures started driving rates up over a year before the Fed made its moves. As of January 2023, the average interest rate on a 30-year mortgage stood at 6.15%.

Let’s put this in perspective. On a $500,000 home (assuming a typical 20% down payment), at a 2.65% interest rate this would translate into a typical

US Existing Home Sales

Case-Shiller US National Home Price Index

US Average 30-Year Fixed Rate Mortgage