California added 28,700 payroll jobs in March, lowering its unemployment rate to 5.3% despite a series of high-profile layoffs that have rocked the tech sector.

The gains were driven by nearly 28,000 jobs in the health services and private education sectors, according to figures released Friday by the state’s Employment Development Department.

However, the growth was inflated by the return of thousands of Kaiser Permanente workers who had been on strike in California and Hawaii. But jobs were added in long-term care, in home healthcare and at practitioners’ offices too.

“As we’ve seen throughout the post-pandemic period, healthcare was the big gainer among sectors,” said Michael Bernick, a former director of the state jobs agency.

Health services and private education has gained 160,400 workers since March 2025, according to the EDD.

Recording small gains too were the government, construction and financial sectors, though employment was lower than a year ago.

The job growth since February helped push the state’s unemployment rate down from 5.4% in January and February. Last year, it topped out at 5.6% and it was last at 5.3% in May 2025.

The state jobs picture still lags behind the nation, which recorded a 4.3% unemployment rate in March, when employers added 178,000 jobs.

However, California no longer has the highest state unemployment rate in the nation. It is now surpassed by Delaware at 5.4%. The rate drop was not all good news, though.

Total civilian employment — which includes agricultural workers and the self employed — fell by 39,600 jobs. That was exceeded by a decline of 56,700 workers in the labor force, driving down the unemployment rate.

Bernick said the decline in the labor force could reflect workers moving to other states and the federal crackdown on undocumented workers.

In California, major tech firms have laid off thousands of workers over the last few years. Just this month, Facebook owner Meta; L.A.’s Snap, operator of Snapchat; and corporate database behemoth Oracle announced more.

Hollywood studios also have been laying off thousands of workers amid a wave of consolidation and a slowdown in streaming film production. Disney is expected to lay off as many as 1,000 workers in the coming weeks.

Bernick said that while the layoffs have attracted widespread attention, they account for only a fraction of California’s large economy.

In December, 1.3% percent of workers were laid off in California, a number that has grown since July 2022 when it was 0.6%, according to Bureau of Labor Statistics data.

However, the latest figure is in line with rates over the last 25 years, with the exception of the recession in June 2009 and the pandemic in May 2020 when it was markedly higher, the data show.

Helping prop up the state’s economy is the massive investment in AI taking place in Silicon Valley — even as companies cite it as a reason for their layoffs — and the resurgent defense and aerospace sectors in Southern California.

Eight technology companies, including Google, Nvidia and SpaceX, have struck deals with the Pentagon to help the U.S. military gain an edge on the battlefield.

“These agreements accelerate the transformation toward establishing the United States military as an AI-first fighting force and will strengthen our warfighters’ ability to maintain decision superiority across all domains of warfare,” the Department of Defense said Friday.

The companies will deploy their AI technology on the department’s “classified networks” for “lawful operational use,” according to the agency.

OpenAI, Microsoft, Amazon Web Services, Oracle and AI startup Reflection are among the companies that agreed to work with the Pentagon.

The agreements underscore how tech companies are expanding their work with the U.S. military even as some workers raise concerns about the use of AI for autonomous weapons and mass surveillance. Anthropic, the San Francisco company behind the chatbot Claude, clashed with the Pentagon earlier this year over whether there were adequate safeguards around the military’s use of its technology.

The Department of Defense accused Anthropic of trying to “seize veto power” over military decisions, though the company pushed back against that characterization. The agency labeled Anthropic a supply chain risk, and the Trump administration directed federal agencies to stop using the company’s tools, setting off a legal battle over that designation.

This week, hundreds of Google employees urged its chief executive, Sundar Pichai, to reject the use of its AI systems for classified workloads to ensure that its technology isn’t used in “inhumane or extremely harmful ways.” Harmful use may occur without their knowledge since the work is classified, workers said in the letter.

Google, Reflection and SpaceX didn’t respond to a request for comment. The Department of Defense didn’t say how much each company was being paid. A Pentagon official said some of the companies have active contracts while others have made agreements but formal contract are forthcoming.

In an interview with CNBC, the Pentagon’s chief technology officer, Emil Michael, said the department wanted to diversify the companies it worked with following its dispute with Anthropic.

“Guardrails are something that are negotiable based on what they are with all the companies, and they have different views on that,” he told CNBC. The guardrails also have to be consistent with the government’s values and restrictions, he added.

A source familiar with Nvidia’s Pentagon deal said the agreement involves work with its “Nemotron” AI models, which are used to build AI agents that can complete tasks, not its chips. The deal includes language that the use of the models will be consistent with civil liberties, constitutional rights and applicable law, the source said.

OpenAI said the deal announced by the Department of Defense refers to the agreement they struck with the agency earlier this year.

The company said that it wanted “the people defending the United States to have the best tools.”

OpenAI, which faced backlash for striking a deal with the Pentagon after the Anthropic fallout, said in March that its technology wouldn’t be used for mass domestic surveillance, high-stakes automated decisions or to direct autonomous weapons.

Other tech companies, such as Microsoft, Oracle and Amazon Web Services, have also said they want to support the military and ensure they have access to the best AI tools.

“We look forward to continuing to support the Department of War’s modernization efforts, building AI solutions that help them accomplish their critical missions,” Amazon Web Services spokesperson Tim Barrett said in a statement.