Where The Unemployment Rate Is Rising The Most

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When the economy moves into recession or out of recession, it doesn’t happen all at once. It’s a process.

In this post, we will look at the change in unemployment rate for various states to see which states are leading the economy into recession and which remain the strongest.

The Bureau of Labor Statistics “BLS” normally reports the unemployment rate and jobs data, but there are many problems with the BLS data in real-time. After several revisions, the data becomes more accurate, but seasonal adjustment patterns and the notorious birth-death model can give unreliable information on the initial release.

For this analysis, we will be looking at the insured unemployment rate from the Department of Labor.

This data is far more accurate than the BLS numbers in real-time because it is based on actual filings rather than surveys and spreadsheet models.

We will also look at the data without any seasonal adjustments so the data is as pure as possible. You can see in this chart that there is a seasonal pattern to the unemployment rate.

Looking at the year-over-year change in the unemployment rate, we can smooth out any seasonal patterns to find periods when the unemployment rate is rising vs. falling.

As the chart shows, when the year-over-year change in the insured unemployment rate rises above zero, a recession usually occurs. There are a few false signals, particularly in the 1990s, but the insured unemployment rate is increasing relative to 2022.

Some macro pundits argue that the 2022 unemployment rate was artificially low, so we shouldn’t use that as a comparison. That’s a fair comment, so we can address that issue by looking at the change in the insured unemployment rate vs. the average of 2019 and 2018, an objective pre-COVID baseline.

When we do that, we can see that the insured unemployment rate is about 0.2% higher than one year ago, and the insured unemployment is roughly flat compared to the 2018/2019 pre-COVID baseline.

In both examples, the trend is rising. At the start of 2023, the insured unemployment rate was about 0.3% lower than the pre-COVID baseline, and now it is starting to trend higher. This is part of the developing recessionary process.

When we dig down into the state-level data, we can see that almost 90% of states have an insured unemployment rate that’s higher today compared to one year ago. This looks clear-cut recessionary.

But, if we stick with the theme that 2022 was artificially low and look at the percentage of states with an insured unemployment rate higher than our 2018/2019 pre-COVID baseline, the number drops to about 30%.

Notably, the trend is rising in both cases. Only about 5% of states had an increase in the insured unemployment compared to the pre-COVID baseline at the start of 2023, a percentage that has increased steadily throughout the year.

So which states are leading the recession? Let’s start by looking at states with an insured unemployment rate higher than 2022. As we know, this is about 90% of states, but we’re going to find the worst states or the states with the largest increase in the unemployment rate.

The states that are most “red” are the states that are showing the largest year-over-year increase in the insured unemployment rate. At the top of the list, we have Massachusetts, Oregon, Washington State, and California.

But we have to keep it objective and respect the fact that 2022 may be distorted, so this map shows the states with the largest increase in the insured unemployment rate compared to 2018 and 2019 in red. At the top of the list this time, we have Massachusetts, New York, California, and Oregon.
This table shows the year-over-year increase and the increase compared to 2018/2019. The blended average shows the mix of both comparisons, and the table is sorted by this blended measure.

So the states that are leading the recession based on an increase in the insured unemployment rate are Massachusetts, Oregon, California, Washington, and New York.

We can run the same table to find the best or strongest states or states with an insured unemployment rate that is still falling, and we find that Alaska, Kentucky, Iowa, Connecticut, and Hawaii are at the top of the list.

How does this tie into the broader economy and the developing recession?
As mentioned, a recession, or the business cycle in general, is a process, not an event. States go into recession one by one, and eventually, the entire economy is dragged down.

At EPB Research, when we analyze business cycles, we always focus on the magnitude of the change, the duration of the change, and the breadth or scope of the change.

This three-dimensional way of analyzing the economy helps eliminate false signals and identify when a recessionary process is actually taking hold.
We can see that the change in the insured unemployment rate is rising against last year and against the pre-COVID level.

The percentage of states or the breadth of the change is increasing as well, which means the broader economy remains on the recessionary track.

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Eric Basmajian is an economic researcher focused on providing an advanced and comprehensive analysis of the business cycle.

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