Wells Fargo Securities has said there are still many signs that California's labor market remains deeply ill, despite the better job creation performance this year.

Despite the better job creation performance this year -- California is expected to create about 194,000 jobs in 2011 compared to a loss of 186,000 jobs in 2010 and a loss of 1.36 million jobs during the Great Recession -- there are still many signs that California's labor market remains deeply ill, says Scott Anderson, an economist at Wells Fargo Securities.

California employment, according to the household survey of labor market conditions, fell in June, July and August, which is much weaker than the current trend in the employer survey of payrolls.

Moreover, the state's labor force has been almost in steady decline since January 2009, and the labor force declines appeared to accelerate through August of this year, says Anderson.

He says a declining labor force is often a symptom of a moribund labor market. As job opportunities and openings increase, it tends to draw marginal workers back into the labor force.

The declining labor force also makes California's unemployment rate look better than it would be otherwise as the unemployed give up looking for work, go back to school to try and get retrained, or leave the state for other employment opportunities elsewhere.

But, even the declining labor force is not able to hide the depth of California's labor market problems. The state's unemployment rate increased for three consecutive months between May and August, he says.

After falling to 11.7 percent in May 2011 from 12.5 percent last December, California's unemployment rate increased back to 12.1 percent again in August, a 0.4 percentage point increase in just three months.

Back in March, Anderson forecast California's unemployment rate would average around 12.0 percent this year, and so far through October, the average unemployment rate in California has been 12.0 percent.

We are currently forecasting employment growth in California for 2012 of 0.8 percent. This is 0.6 percentage points weaker, or about 81,000 jobs less, than this year's performance, he says.

Job growth will continue to vary widely across California regions and across sectors as statewide economic growth continues to limp along. The coastal regions of northern and southern California are fairing the best, though there are pockets of weakness even here.

For example, the San Jose metro area is doing far better than its neighbors in the Marin, Alameda and Contra Costa counties. Orange County, Ventura County and San Diego are recovering more strongly than the Inland Empire, said Anderson.

The central valley of California continues to struggle in overcoming the legacy of the debt and housing bubble collapse, and Anderson anticipates it will be several more years before these areas of California fully participate in California's economic recovery.

Internet company expansions are helping to create jobs in San Jose and driving jobs creation in many other service and retail businesses. In Los Angeles, film and television production is coming back to the city, and that is helping support other industries and suppliers that benefit from that activity.

Anderson says housing markets are also more balanced in many markets, such as San Diego, parts of Los Angeles and San Francisco, so there are fewer job losses in construction in these areas.

Wells fargo Retail Unemployment California