The Coming $50 Billion State Unemployment Bill

$10.9 Billion.

That's the amount of money currently lent by Federal Department of Labor (DOL) to a group of 15 states whose unemployment insurance (UI) trust funds have run dry. And it's about to get a whole hell of a lot worse. By the end of the year that number will likely have have grown to 35 states. Total DOL emergency loans to states at that time? Nearly $50 billion dollars. The situation will be far worse for some states than others. The states appearing in red on the map below are those that will need DOL loans to keep unemployment benefits rolling.

13 States Now Have 10% Unemployment

A picture is worth a thousands words, and this map shows the loss of a couple of hundreds of thousands of jobs. This map shows the current unemployment in each of the 50 states, and in 13 of them, that rate is above 10%.

At least in part, this map shows the immediate impact of the shutdown of much of the US auto industry. With most GM and Chrysler plants idled beginning in early may, a large number of parts suppliers have followed suit. As a consequence, the industrial region around the Great Lakes has seen unemployment jump to heights not seen since the late 1970s.

California's Screwed, Arizona and Rhode Island are too

At this point, many people here are aware that a number of states have deep budget deficits that threaten to bring shutdowns as early as August. I think that throwing some numbers in really shows the depth of the problem as well.

This map shows the gap between expected 2009 state revenues and the budget for the year in percentage terms. California has a real problem, as do several other states.

23.4% Unemployment in Michigan?

Unemployment is a malleable thing. The official unemployment rate released by the BLS (Bureau of Labor Statistics) excludes those individuals who have not looked for work in the last month and those forced to work part time for economic reasons. In short the official rate (U-3) tends to vastly understate the unemployment rate, creating the impression that things are better than they actually are. For many, years the BLS has released what it calls alternative measures of labor underutilization that provide details of the percentage of workers who would like to work (but haven't actively sought it in the last month) and those working part time for economic reasons at the national level.

However, until very recently, the BLS has not released this data at the state level. That has changed. When we look at this broader unemployment rate at the state level, the picture isn't pretty.

This isn't a conspiracy. The problem is small sample size. The BLS uses surveys with a very large number of participants to drive down the marign of error. So the number that we get at the national level is basically the same that you'd get if you called everyone in the US. But, when you go to the states, the number of participants shrink, and when you include a large number of categories, the margin of error goes up. It's still quite low, just not the gold standard that the BLS has set for national unemployment figures.

A Deeper Look into Friday's Unemployment Numbers

The headlines hit the feeds, WOW! May nonfarm payrolls -345,000, while minimizing a 9.4% national unemployment rate.

Others, not really interested in lagging indicators of a possible recession bottom, questioned Huh?

I mean, really, talk about cheerleading!   A reduction in the collosal monthly rate of job losses over the last year or so is interpreted here as a slow-down in the recession?  How so?  A slow-down in job losses, perhaps, and probably a monthly blip, but an improving recession?    How is that connection established?   I'd say there's about as much substance to that statement as Bush's remark that "We don't torture".

In Jobless rate slows, unemployment up and traders are happy:

There are so many people that have run out their unemployment benefits and have either:

  • Just stopped looking and aren't working
  • They had to take part time work

In these economic times of a prolonged recession, oops better get my words in order her, call it an economic down turn.   Did the powers to be ever really say the R word.   Did we hit enough quarters for them?

Econbrowser (one of the best blogs out there for economics!) says it all with a couple of graphs:

Do We Need another WPA?

This is a joint article I wrote with Bonddad

Regardless of when this recession ends, the malaise of working and middle class America will not be relieved until wages increase, and employment rates return to a robust level. Since unemployment is a lagging indicator, the news on that score is grim. Almost every analyst believes that there will be another "jobless recovery" such as those that followed the 1990 and 2001 recessions. Even after GDP bottomed and those recessions technically ended, there was an average 17 month increase in unemployment of .9% (or a 15% percent increase in the rate) followed by a 13.5 month decrease back to the rate at the "bottom" of the recession. If that pattern holds true again, then even if this recession bottoms shortly, unemployment will be 10.1% by July, rise to 11.3% by December 2010, and take until at least early 2012 to decrease back under 10%, looking like this graph:

Note this is U3 unemployment, so U6 unemployment will be correspondingly worse.

U3 and U6 Unemployment during the Great Depression

A frequent meme propounded in the economic blogosphere is that U6 unemployment, running near 17% now, is a truer measure (and there are good reasons to believe it is), so that means we have unemployment already approaching Great Depression levels of 25%. Left out of the comparison is the fact that U3 and U6 measurements didn't exist during the 1930s. So, is the 25% unemployment peak for the Great Depression a fair comparison to U6 unemployment today?

N. Andrews compared historical versions of unemployment statistics with the modern U3 and U6 versions, published as "Historical Unemployment in Relationship to Today" , has an answer. He writes:

Unemployment and Recovery

The BLS reported this morning that in April the U3 unemployment rate increased to 8.9%. This is a .4% increase from March, and is what I expected.

This is one of those cases where "less awful" actually ought to give rise to some hope. Before Black September, when we had a shallow recession confined to Wall Street and housing-related trades, the worst month for payroll loss was -175,000. By November the loss was -597,000, and from December through March losses were clustered near -700,000 a month!.

April's payroll loss of -539,000 is ~140,000 less than the last 4 months. If this new trend continues for another 3 months, payroll losses will vanish and the economy might actually begin to add jobs by August.