California's unemployment rate dropped in March to 9.4 percent, from 9.6 percent in February.
The state gained more than 25,500 jobs.
Most of the gains came in the professional and business services sector.
Economists are concerned the state may not continue to see the unemployment rate decrease as college and high school graduates enter the labor force.
Economist Esmael Adibi of Chapman University says job creation will have to remain strong.
"I would not be surprised to see an uptick in the rate, rather than a continuation of a decline," says Adibi. "That's the only grey area in this report. At the surface we welcome a decline in unemployment rate, but deep down we're worried about the drop in labor force."
More than 15,000 Californians dropped out of the labor force in March.
California's job creation is still outpacing the nation.