Unemployment Rate Shows Covergence of State Economies

Posted by Andre Mayer on Dec 19, 2013 2:01:00 PM

Massachusetts added 6,500 jobs in November, pushing the state’s unemployment rate down a tenth of a point to 7.1 percent, according to federal Bureau of Labor Statistics preliminary estimates released today by the state Executive Office of Labor and Workforce Development.

Over the past year, Massachusetts has added 55,300 jobs (53,800 in the private sector), but the unemployment rate has risen four-tenths of a percentage point.

Adding jobs in November were Professional, Scientific, and Business Services; Manufacturing; Financial Activities; Education and Health Services; Information; Construction and Other Services.  Manufacturing added 2,100 jobs in the month, but was down 1,000 since last November.

The job gains for the month and year are from the monthly survey of employers. The survey of households, upon which the unemployment rate is based, shows a decline in employment both for the month (-300) and for the year (-8,200). While AIM tends to be most interested in the employer numbers, we note that public perception (consumer confidence) is an important determinant of economic performance, so this continuing divergence remains a cause for concern.

The most striking aspect of today's report is that the Massachusetts unemployment rate (7.1%) is higher than the national rate (7.0%).  The last time this happened was in May 2007, when the state rate was 4.5 percent and the national rate was 4.4 percent. In that period before the onset of the Great Recession, the state and national rates were running close. But when the recession hit, Massachusetts fared better. Our economy went into decline later; the peak-to-trough employment loss was less; and recovery came faster.

That the state and national unemployment rates are again closely aligned is not in itself bad news for Massachusetts. It is simply a return to the status quo.

If however, we choose to regard this restoration of balance as marking the symbolic end of the recession-recovery cycle and entry into "new normal" conditions, then the unacceptably high levels of unemployment in both the state and nation are bad news indeed. So, of course, is the fact that the state's unemployment rate has risen to meet the national rate; it's one thing to be overtaken, and another to be going in the wrong direction.  

A big part of the story is that over the long term, individual state economies have moved more and more in unison. This movement towards a more truly national economy is demonstrated by the following graph developed by Steven G. Cochrane of Moody’s Analytics:

describe the imageCochrane attributes the convergence of state economies primarily to the national consolidation of many industries – most notably the banking sector. He notes that the spike in differentiation at the onset of the Great Recession resulted from the impact of the housing collapse on states such as Florida, Arizona, and Nevada, where residential construction is a large component of the economy.

Does this nationalization of the economy mean that state policy doesn’t matter anymore? Not at all – it means that all states are competing for economic development, wealth, and jobs in the same arena, and that every advantage and disadvantage matters more than ever.

Topics: Massachusetts economy, Jobs, Unemployment

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