Unemployment is falling everywhere except the Northeast. Why is that?

October 20, 2012

The U.S. economy has an unexpected weak spot. It's not Ohio or Michigan or any of the usual suspects. It's the Northeast.


Drizzly times in New York State (Washington Post)

Full credit to the excellent David Dayen for pointing this out. According to the latest data from the Bureau of Labor Statistics, U.S. unemployment is falling in 41 states — including most of the swing states. But there's one huge exception.

Unemployment in the Northeast United States appears to have been getting significantly worse over the past year. (That includes everything from Pennsylvania and New Jersey up to Maine.) The Northeast unemployment rate has risen from 7.9 percent in April to 8.5 percent this past September:

You can see a similar story in this chart from Calculated Risk. Unemployment rates in states like Ohio, Michigan, even California and Nevada have all dropped significantly from their recession peak. Even if some of those states are still struggling, the trend is encouraging.* But it's the opposite in states like New York, New Jersey, Connecticut, and Pennsylvania. Those states have barely improved at all since the worst of the recession.

Indeed, as Evan Soltas observed at Bloomberg, the recent deterioration of the Northeast — a region that was holding up relatively well in 2010 and 2011 — helps explain why the U.S. unemployment rate has fallen so slowly this year.

So... any theories? The popular line among politicians in New York and New Jersey is that the unemployment numbers are just plain wrong. The Bureau of Labor Statistics says that the jobless rate in New York climbed from 8.2 percent when Gov. Andrew Cuomo took office last year to 9.1 percent today. Cuomo's administration, by contrast, says that this is out of whack with state payroll data that show rising job growth. (It's possible, for instance, that BLS's household surveys are missing population growth in New York City.)

Another theory is that the Northeast has been hit harder by the slowdown and debt crisis in Europe than anywhere else. As Steve Cochrane of Moody's Analytics has noted, the Northeastern U.S. exports more to Europe than any other region. Manufacturing has shrunk more rapidly here than anywhere else in the country this year. And the already-shrinking financial sector in New York and Connecticut has been battered by the euro zone's debt crisis. 

One thing Cochrane pointed out in his "U.S. Regional Outlook" report last year was that the Northeast had greater "downside risks" and was more susceptible to a global slowdown than any other region in the country. The South has benefited greatly from oil and gas production. The West is buoyed by growth in technology firms. The Midwest has "the most diversified export markets." But, he noted, the Northeast is still getting crunched by the slowdown in the financial sector.

Note also that the housing market has been slower to recover in the Northeast than in the rest of the country, at least judging from the latest data on home sales and prices. And, as Soltas points out, states like New Jersey, Pennsylvania, and Connecticut are all seeing a sharp cutback in public sector employment.

In any case, the Northeast's woes aren't likely to get a ton of political attention, since most of the states here aren't swing states for the presidential race. But this slowdown might help explain why the Senate contest in Connecticut remains so close—that's usually a clear blue state—as well as why Pennsylvania is a tight race. But either way, it's certainly an important economic story.

* Correction: Actually, as Marcy Wheeler points out, I spoke too soon in the case of Michigan. The state's unemployment rate is up from 8.3 percent in April to 9.3 percent in September. It did go down last month—and Michigan is still in a far better place than it was during the worst of the recession—but that's a worrisome uptick.

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Sarah Kliff · October 20, 2012