A U.S. Regional Perspective on Claims for Unemployment Insurance

At the regional level, initial UI claims can offer useful insight into economic conditions within states. The table presents two interesting economic storylines: 1) continuing problems in the "housing states" and 2) impending slowdown in the Mountain and Northwest regions. The "housing states" area group named for the extreme plight of their real estate markets, which have faced serious declines in housing starts, sales, and home prices over the past few years.

Florida, California, Nevada, and Arizona are four of the main "housing states," and the recent incidence of extremely high foreclosure rates for subprime mortgages has further exacerbated existing economic problems in these states. In those four states, significant jumps in numbers in initial UI claims began to appear in February 2007, with reported increases ranging from 13% in California to over 21% in Arizona. These increases were followed by slowdowns in employment growth of magnitudes approaching those of the 2001 recession. By February 2008, each of these four states had reported more severe increases in initial claims relative to a year earlier: 57.6% in Florida, 43% in Nevada, 39.6% in Arizona, and 19.6% in California. Assuming that initial UI claims offer reliable insight into future conditions, the rapidly increasing numbers certainly indicate that the housing states' economies have further to fall. Given our expectations for continuing problems in real estate markets, it is reasonable to believe that this will be the case.

The second major storyline developed by the data refers to the abrupt increases in initial claims recorded in February 2008 for four key states in the Mountain and Northwest regions of the country: Utah, Idaho, Washington, and Colorado. Of these four states, Utah led the pack with a 57.6% increase in February 2008 relative to a year earlier. As is the case for the four main housing states, the abrupt rises in initial claims likely foreshadow a period of lackluster economic performance in 2008.

In general, the economies of Utah, Idaho, Washington, and Colorado have been aided by steady population growth, the ability to attract new businesses to the area, and relatively stable housing markets. The driving forces of economic performance have not been homogenous across these states, but healthy growth has been commonplace in all four. Soft declines in home prices and foreclosure rates have helped keep the real estate markets in these states afloat, although they have seen reductions in total housing starts. Annual employment growth during 2007 in all four states was quite healthy, including few changes in levels of initial UI claims reported in February 2007. It is important to note, however, that despite steady overall payroll expansions in each of these states during 2007, employment growth rates slowed during the fourth quarter as the beginning of a national declaration begin chipping away at state-level payroll growth. The end of the year also ushered in what is expected to be a rough patch for these states' housing markets, including annual home price declines in both 2008 and 2009 (although they will be softer than the decreases observed at the national level). These changes may very well mark a tipping point for the four states' economies as their housing markets begin to struggle, and produce constraining influences on economic growth, at least in the short term. Overall, strong fundamentals in these state economies, upside potential, and significant momentum will help them weather the storm of an expected national recession, and they should remain among the fastest growing economies in the United States.

During a period of real estate downturn, the fate of the broader economy can often depend on whether or not the effects of the market's meltdown extend beyond the housing market. The depth and duration of the current recent real estate crisis has allowed it to contaminate the broader economy and to spread to even the healthiest states. As the crisis further entrenches itself for the near term, the 2008 outlook for most regions of the country remains gloomy. Increases in initial UI claims have been recorded in a majority of states, emphasizing the case for lackluster 2008 performance in most states, particularly those in which the changes in initial claims have been the largest. Using this data at the regional level to draw inferences into the future of state economies is certainly not a perfect science, but any time states record increases similar to those in the top 15, it is certainly not ill-advised to assume that darker times may be on the horizon.