A U.S. Regional Perspective on Financial Employment

While the housing market began to unravel in early 2006, fallout in the financial sector—in terms of documented job losses—ensued about a year later. Regionally, it differs depending on the condition of the local housing market and the state's exposure to overleveraged financial firms. Displayed below are the states ranked in terms of percentage declines in financial jobs since the most recent peak.

Clearly, there is much dispersion in the timing and extent of damage to financial sector employment. Since February 2007, financial payrolls have declined 1.6% across all states, a total of 135,800 jobs. Individually, stress in local housing markets has much to do with the results. Well-documented real-estate meltdowns in Rhode Island, California, Nevada, and Michigan have coincided with losses in the finance sector that position these states at the top of the list. Other notable states with housing declines—Arizona, Florida, New Jersey, and Ohio—have all seen substantial losses in their financial employment. Although Washington has not had the sort of housing troubles as some of its West Coast neighbors, its banking industry has much exposure to California's mortgage market. Other states, like Utah and Missouri, experienced steady price appreciation during the housing bubble and foreclosures have been mild, but tightness in the credit market is not only souring the market for mortgages, but also for loans across the banking industry. Conversely, the financial sectors in the Midwest have been the most resilient. The insurance industry, which represents a significant portion of sector employment in Nebraska and Iowa, has generally been less affected. Housing markets have also faired better in this region.

Looking Ahead

As the credit crisis ripples through the entire national financial sector, individual states are very much at risk for further layoffs. Most states have been in some degree of housing correction for well over a year. Today, even financial industries more at the peripheral of the mortgage crisis—i.e., retail, commercial, and investment banking—are seeing their outlook worsen because tightening credit markets and massive write-downs are leading to deep losses, and in some cases insolvency.

The key case in point is New York, where recent financial layoffs have yet to surface in the employment figures; financial payrolls in August were just 1.1% lower than at the start of the mortgage crisis a year ago. Expect the employment data to paint a different picture over the coming months. The investment banking industry, in particular, has undergone tremendous adversity of late that has already transformed the industry. Thousands of more layoffs are expected to follow. New York is unique in its exposure to the investment banking industry, but similar scenarios could play out in states with a large presence of struggling retail or commercial banks that may either fail or be swallowed up by competition.

The financial markets are in a profound period of correction, with great uncertainty looming on the horizon. For individual states and cities, the impact of this crisis on local economies will continue to exhibit wide disparities.