States with highest unemployment rates share root causes

Unlike the last recession, today's unemployment hot spots are all over the map.

The five states with the highest unemployment rates -- Michigan, Rhode Island, South Carolina, California and Oregon -- all have something in common, though: a heightened exposure to the root causes of this downward spiral.

The collapse of housing. The implosion of the auto industry. The meltdown of financial services. The exodus of manufacturing.

All states are feeling the pain, but the worst are getting hammered on multiple fronts:

-- The rotten housing market has punished California lenders and builders, taken an ax to Oregon's timber industry and soured the prospects for construction workers in Rhode Island, where buyers from neighboring states helped drive up home prices.

-- The steady decline of the manufacturing sector has punished Rhode Island and South Carolina, where laid-off factory workers lack the training and job opportunities in an increasingly high-tech economy.

-- The auto industry's pain is Michigan's above all. But it is also being felt in states like South Carolina, where German automaker BMW has cut 500 temporary workers, and in California, where many of dealerships have shut down.

"What makes this a different recession," said Rebecca Blank, an economist at the Brookings Institution, "is that it is so widespread."

During the 2001 recession, which was largely tied to the dot-com collapse, the West had a disproportionate amount of the jobless burden: Oregon, Washington, Alaska and California had the highest unemployment rates. (Mississippi and Washington, D.C. were tied with California.)

There is one region of the country that has largely avoided the country's real estate and manufacturing woes, and as a result has been spared the worst of the recession's pain.

A contiguous cluster of rural states -- Wyoming, North Dakota, South Dakota, Nebraska and Utah -- had the lowest unemployment rates in November, ranging from 3.2 percent to 3.7 percent. The Labor Department on Friday said the national jobless rate in December was 7.2 percent.

Historically high prices for energy and grains have been a boon to their economies, although recent declines in commodity prices are beginning to bite, economists said.

For the majority of the country, the air has come out of a decade-long housing bubble, with home prices falling an average of 20 percent in the past year and almost one in ten mortgages either overdue or in foreclosure. A wide swath of industries is feeling the pain, including real estate agents, bankers, builders, lumber companies and furniture makers.

The real estate bust is at the heart of mounting job losses in California, which has seen its unemployment rate reach 8.4 percent, the third-highest in the nation. In the year ending in November, 71 percent of the nonfarm jobs lost in California were housing-related.

Many of the nation's leading mortgage lenders -- Countrywide Financial, New Century Financial, IndyMac Bancorp, and Fremont General Corp. -- were based in California and have since been bought by larger banks or gone bankrupt.

The recently unemployed in California include Filemon Galvan, 41, of Buena Park, Calif., who was laid off from his job as a carpenter for a housing subcontractor in August.

"It's been a long time since we had a nice family outing," Galvan said in Spanish.

As the country's leading lumber producer, Oregon has also taken a direct hit from housing, with sawmills producing sharply less than a year ago. The slump has cost Oregon about 1,000 logging jobs in the past two years and more than 7,000 jobs in wood manufacturing, which includes plywood mills and the production of door and window frames, said David Cooke, an economist in Oregon's employment department.

Not even tiny Rhode Island, which has the nation's second-highest unemployment rate at 9.3 percent, has been exempt from the housing bust.

The slide has cost Rhode Island more than 3,000 construction jobs in the past year, according to the U.S. Labor Department.

Due to a combination of high energy prices, a strong dollar and competition from overseas, manufacturers have been manhandled for most of this decade -- and ground zero for the loss of factory jobs is Michigan. Its crumbling auto industry explains a large part of the state's nation-leading unemployment rate of 9.6 percent. Around the state, and across the country, the state's automakers have had to close plants and showrooms, cut back workers' hours and reduce wages as consumers' appetite for new cars dwindles along with their job security.

But the manufacturing slowdown has gone far beyond the industrial Midwest. South Carolina's jobless rate has reached 8.4 percent, the third-highest, as it struggles to replace lost textile and apparel manufacturing jobs with the type of high-tech industries that North Carolina has been able to attract.

And Rhode Island, not generally known as a manufacturing hub, has suffered. The industrial conglomerate Textron Inc., which is based in Providence and makes Cessna jets and Bell helicopters, laid off 2,200 of its 43,000 workers last year.

Most of the state's manufacturers are small, however, and have had a tough time weathering the credit crunch.

Lincoln, R.I. resident Larry Miller believed he would retire from the auto parts manufacturer where he first got a job as a newly married 26-year-old. That was two factory closings ago, the most recent being a plant owned by KIK Custom Products, which also had employed his wife.

"The word loyalty is gone," said Miller, shaking his head while sitting at his kitchen table. He found a new job in Massachusetts, but his wife is still looking.

Like South Carolina, the state hasn't yet made a successful transformation from manufacturing to newer-economy industries such as biotech or computing.

"I would summarize Rhode Island's economy as information age, hold the information," said Leonard Lardaro, an economist at the University of Rhode Island.

New unemployment claims surge unexpectedly

The Labor Department reported Thursday that initial applications for jobless benefits in the week ending Dec. 6 rose to a seasonally adjusted 573,000 from an upwardly revised figure of 515,000 in the previous week. That was far more than the 525,000 claims Wall Street economists expected.

Elsewhere, the U.S. trade deficit rose unexpectedly in October as a spreading global recession dampened the once-strong sales of American exports and the volume of oil imports surged by a record amount, the Commerce Department said.

More layoffs were announced Thursday. New Britain, Conn.-based tool maker Stanley Works said it plans to cut 2,000 jobs and close three manufacturing facilities, while Sara Lee Corp., known for food brands such as Jimmy Dean and Hillshire Farm, said it will cut 700 jobs as the Downers Grove, Ill.-based company outsources parts of its business.

New jobless claims last week reached their highest level since November 1982, though the labor force has grown by about half since then.

The trade deficit rose to $57.2 billion in October, from an imbalance of $56.6 billion in September. Analysts had been looking for the deficit to decline to $53.5 billion on lower oil prices. Oil prices did drop by a record amount, but that was offset by a record surge in the volume of oil imports.

The reports, along with investor concerns that an auto bailout bill may not pass the Senate, sent stock markets slightly lower. The Dow Jones industrial average fell about 15 points in morning trading.

The jump in initial jobless claims is partly due to a rebound in claims from the previous week, which included the Thanksgiving holiday, a Labor Department analyst said. Government offices were open for fewer days that week.

Still, the four-week average, which smooths out fluctuations, was a seasonally-adjusted 540,500, the highest since December 1982, when the economy was emerging from a steep recession.

"Stepping back from the short-term noise ... it is very clear that the underlying trend in claims is still rocketing, as companies throw in the towel and prepare for a long, deep recession," Ian Shepherdson, chief U.S. economist for High Frequency Economics, wrote in a note to clients.

The number of people continuing to claim jobless benefits also jumped much more than expected, increasing by 338,000 to 4.4 million, the Labor Department said. Economists expected a small increase to 4.1 million. The figure for continuing claims lags initial claims by one week.

As a proportion of the work force, the number of people continuing to receive benefits is the highest since August 1992, when the U.S. was recovering from a relatively mild recession. The increase in continuing claims was the largest jump since November 1974, the department said.

Economists consider jobless claims a timely, if volatile, indicator of the health of the labor markets and broader economy. Last year, initial claims were 337,000.

The figures come a day after the Treasury Department reported a record budget deficit for November, driven by lower tax revenues and higher spending on programs such as unemployment insurance and food stamps.

In just the first two months of the budget year that started Oct. 1, the budget deficit totaled $401.6 billion, nearly matching the record gap of $455 billion posted for all of last year, the department said Wednesday.

Economists expect the deficit will top $1 trillion in the current budget year, which would be a post-World War II high when measured as a percentage of the economy.

The economy has been hit hard by the ongoing housing slump and financial crisis, which have sharply reduced household wealth as stock prices and home values have declined. Consumers and businesses have dramatically cut back their spending. The National Bureau of Economic Research said this month that the economy fell into a recession in December 2007.

The Labor Department said last week that employers cut a net total of 533,000 jobs in November and the unemployment rate reached 6.7 percent, a 15-year high. The rate would have been higher, except that more than 400,000 Americans gave up looking for a new job and weren't counted in the labor force.

The latest jobless claims figures indicate that the December unemployment report could be at least as bad as November's, Abiel Reinhart, an analyst at JPMorgan Chase Bank, wrote in a client note.

Companies have eliminated a net total of 1.9 million jobs this year, and some economists project the total cuts could reach 3 million by the spring of 2010.

A number of large U.S. employers announced layoffs this week, including Dow Chemical Co., 3M Co., Anheuser-Busch InBev, National Public Radio and the National Football League.

Jobless claims jump unexpectedly to 16-year high

New claims for unemployment benefits jumped last week to a 16-year high, the Labor Department said Thursday, providing more evidence of a rapidly weakening job market expected to get even worse next year.

The government said new applications for jobless benefits rose to a seasonally adjusted 542,000 from a downwardly revised figure of 515,000 in the previous week. That's much higher than Wall Street economists' expectations of 505,000, according to a survey by Thomson Reuters.

That is also the highest level of claims since July 1992, the department said, when the U.S. economy was coming out of a recession.

The four-week average of claims, which smooths out fluctuations, was even worse: it rose to 506,500, the highest in more than 25 years.

In addition, the number of people continuing to claim unemployment insurance rose sharply for the third straight week to more than 4 million, the highest since December 1982, when the economy was in a painful recession.

The financial markets fell on the news. The Dow Jones industrial average dropped about 160 points in morning trading, and broader indexes also fell.

The jobless figures come as the Senate is expected to vote Thursday on legislation that would extend unemployment benefits. The White House said President George W. Bush would quickly sign the bill.

The measure would provide seven additional weeks of payments to those who have exhausted their benefits. Those in states where the unemployment rate is above 6 percent would be eligible for an additional 13 weeks beyond the 26 weeks of regular benefits. Benefit checks average about $300 a week nationwide.

Without the legislation, its proponents say, 1.1 million people will have exhausted their unemployment insurance by the end of the year.

Elsewhere Thursday, the New York-based Conference Board said its monthly forecast of economic activity declined 0.8 percent in October, worse than the 0.6 percent decrease analysts expected. The economy's health worsened last month as stocks, building permits and consumer expectations all fell, the private research group said. Over the last seven months, the index declined at a 4.7 percent annual rate, faster than any decline since 2001.

The high level of continuing unemployment claims partly reflects growth in the labor force, which has increased by about half since the early 1980s. The percentage of workers continuing to receive benefits — which is different from the unemployment rate — increased to 3 percent, the highest since June 2003. Less than half of unemployed workers receive unemployment insurance.

Joshua Shapiro, chief U.S. economist at MFR Inc., a consulting firm, said the four-week average of continuing claims is 49 percent higher than it was a year ago. That "indicates that those who are unemployed are finding it increasingly difficult to get re-employed."

Shapiro wrote in a note that the number of claims indicates that net job reductions by employers could top 400,000 this month, up from 240,000 in October, when the unemployment rate reached 6.5 percent. Companies have cut 1.2 million jobs so far this year.

Many economists expect unemployment to reach 7 percent by early next year and 8 percent by the end of 2009. Last year the rate averaged 4.6 percent.

The Federal Reserve on Wednesday released projections that the jobless rate will climb to between 7.1 percent and 7.6 percent next year, according to documents from the Fed's Oct. 29 closed-door deliberations on interest rate policy.

Initial claims have been driven higher in the past several months by a slowing economy hit by the financial crisis, and cutbacks in consumer and business spending.

Economists consider jobless claims a timely, if volatile, indication of how rapidly companies are laying off workers. Employees who quit or are fired for cause are not eligible for benefits.

Companies from a wide range of sectors have announced layoffs recently, including Citigroup Inc., Union Pacific Corp., Boeing Co., Wyeth, Sun Microsystems Inc., and poultry maker Pilgrim's Pride Corp.