The state's unemployment rate dropped from 10.6 percent to 10.2 percent, the second largest drop in the nation.
But payroll jobs increased by just 8,500 for September.
The unemployment number is based on a survey of households rather than a more accurate check of businesses.
Economist Esmael Adibi of Chapman University says businesses still face uncertainty.
ADIBI: "There are so many headwinds out there that they are worried about, one obviously is the election, the other one is the extension of President Bush's tax cut, then there's the fiscal cliff which is across the board cut in spending."
The household survey shows the number of employed Californians increased almost 53,000 in September.
Adibi says part of the discrepancy is because people are either underemployed or identifying themselves as self-employed. SOC