California’s labor market rebounded in August with 39,400 new nonfarm jobs and an upward revision to July’s tally, yet a continued contraction in the state’s workforce and a near-total reliance on health care hiring left economists questioning the strength beneath the headline gains.

California’s employers added 39,400 nonfarm payroll jobs in August 2026, lifting total statewide employment to a seasonally adjusted 18,177,200 and reversing a summer stumble that had unsettled economists, according to the latest Beacon Employment Report from Beacon Economics, released September 18. The rebound arrived alongside an upward revision to July’s figures, but a shrinking labor force and an outsized dependence on a single industry kept any celebration in check.

Beacon Economics revised July’s count upward by 4,800 jobs, softening what had first looked like a sharp contraction. The corrected figure showed a loss of 15,700 jobs in July, an improvement over the 20,500 decline initially reported.

Over the past year, California payrolls have grown 0.8 percent, doubling the national rate of 0.4 percent, the report found. That headline, however, masks a lopsided story. Stripped of the state’s sizeable gains in health care, employment would be up just 0.2 percent over the last 12 months, according to the report.

The expansion has been carried almost entirely by locally serving industries — health care, retail trade, and education — rather than the export-driven technology and trade sectors that historically powered California’s booms.

Health care remained the clear engine of that growth, adding 111,800 jobs, or 3.6 percent, over the past year, according to the report. Leisure and hospitality followed with 45,700 new positions, a 2.3 percent gain, ahead of retail trade at 22,400 and education at 19,700. Professional, scientific, and technical services and real estate posted more modest annual increases.

The declines were concentrated in the sectors that once defined California’s expansions. Information led all losses, shedding 22,600 jobs, a 4.2 percent contraction the report tied to software publishers, motion picture and sound recording firms, and data-processing and web-hosting providers. Finance and insurance gave up 15,500 jobs, or 3.2 percent, followed by administrative support at 12,800, manufacturing at 10,100, and construction at 6,900. Government payrolls slipped by 3,600 over the year.

On a monthly basis, most sectors added jobs in August. Health care again led with 11,900 new positions, powered by ambulatory health care services and hospitals, followed by government at 9,800 and leisure and hospitality at 7,800, according to the report. Finance and insurance posted the steepest monthly decline, losing 1,800 jobs.

The Bay Area contributed its share of the rebound. San Jose led the region with 3,500 new jobs in August, a 0.3 percent gain, while the East Bay added 2,200 and San Francisco proper added 800, according to the report. Over the past 12 months, Napa has posted the fastest job growth in the region at 2.2 percent, trailed by San Jose at 1.8 percent and San Francisco at 0.9 percent; San Rafael was the lone Bay Area metro to lose ground, down 0.4 percent.

California’s unemployment rate held at 5.1 percent in August, unchanged from the prior month but down 0.4 percentage points from a year earlier — a faster annual improvement than the 0.2-point decline recorded nationally. Even so, the state’s jobless rate remains among the highest in the country, trailing only Washington, D.C., and tied with Oregon and Connecticut, according to the report.

The most troubling signal, in Beacon Economics’ reading, was the continued erosion of the labor force, which fell by 50,500 workers, or 0.3 percent, in August. Over the past year, California has shed 337,200 workers from its labor force, a 1.7 percent contraction that dwarfs the 0.6 percent decline seen nationally. With job gains limited, the report noted, the falling unemployment rate is being driven by that shrinking labor force rather than by robust hiring.

“The decline in the labor force is alarming, but the numbers are questionable,” said Justin Niakamal, research manager at Beacon Economics, in the report. “The two surveys that make up these monthly numbers have diverged with the survey of household employment showing a large loss and the survey of business establishments showing a significant gain.” Niakamal added that the data may be revised in the future.

The report also cited lower international migration, an aging population, and California’s chronic housing shortage as forces constraining the state’s labor supply, while cautioning that the inherent variability and noise in survey data may be exaggerating the decline.

A shrinking labor force carries consequences well beyond a single month’s headline. Fewer available workers can cap how fast the nation’s largest state economy is able to grow, tighten the pool employers draw from, and weigh on everything from consumer spending to demand for commercial space. That California’s contraction is running at nearly three times the national pace, as the report shows, sharpens the concern.

Whether August’s rebound marks a genuine turn or a statistical blip will hinge on the revisions still to come. For now, the report describes a California economy that is still expanding, but leaning heavily on a narrow band of industries and losing workers at a rate that, if sustained, could constrain the state’s growth well beyond this year.