REGIONAL ECONOMIC COMMENTARY January 28, 2009

State Employment: December 2008

Mark Vitner, Senior Economist
mark.vitner@wachovia.com
704-383-5653
Adam G. York, Economic Analyst
adam.york@wachovia.com
704-715-9660
Kim A. Whelan, Economic Analyst
kim.whelan@wachovia.com
704-715-8457
The national economic collapse has hit the labor market hard over the last few
months. While revised figures will not be out until the end of next week, it has
become quite clear that 2008 will be one of the worst years for the labor market in
quite some time. The fourth quarter turned out to be the worst quarter for job losses
(more than 1.5 million) across the nation since the aftermath of World War II. As a
result of the massive job losses and continued gains in population the unemployment
rate has soared nationwide, up 2.3 percentage points from the end of 2007.
Figure 1
Nonfarm Employment Highlights
(December 2008)
Year-over-Year
Change in Year-over-Year
Rank State Thousands Rank State Percent Change
1 Texas 153.7 1 Wyoming 2.22%
2 Oklahoma 15.2 2 Texas 1.47%
3 Louisiana 8.2 3 Oklahoma 0.97%
4 Wyoming 6.5 4 Alaska 0.88%
5 South Dakota 3.4 5 South Dakota 0.83%
47 New York (119.9) 47 Indiana (3.74%)
48 North Carolina (120.2) 48 Michigan (4.09%)
49 Michigan (173.0) 49 Idaho (4.34%)
50 Florida (255.2) 50 Arizona (4.34%)
51 California (257.4) 51 Rhode Island (4.48%)
Source: U.S. Department of Labor and Wachovia

There are few places in the nation that are escaping the pain of the current labor
market downturn. Just eight states and the District of Columbia added jobs over the
last year, while job losses have exceeded 100,000 in nine states over that same period.
Michigan, Idaho, Arizona and Rhode Island have all lost more than four percent of
their nonfarm jobs in the last year and there is little reason to believe that the layoffs
will subside in the near future. Nationwide job losses will most likely be heaviest

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 State Employment: December 2008
January 28, 2009 REGIONAL ECONOMIC COMMENTARY

during the first half of this year, as businesses ramp down production and bring
capacity back in line with weaker overall global economic conditions. While job
losses are expected to taper off later this year, they should still remain quite
formidable. We expect total job losses for this recession to reach 5 million.
While the unemployment rate has risen sharply over the past year, several states
have seen dramatic increases. Two states, Michigan and Rhode Island, currently
have unemployment rates in the double digits and several more states are getting
close. Not only does Rhode Island have one of the highest unemployment rates it
also has seen the fastest run up, an astonishing 4.8 percentage points over the past
year. In fact, every state in the nation has seen its unemployment rate rise over the
past year. The best states in the nation in both level of unemployment and only a
modest increase over the last year are Wyoming and North Dakota, which have both
benefited from gains in the energy sector.
Figure 2
Unemployment Highlights
(December 2008)
Year-over-Year
Unemployment Percentage Point
Rank State Rate Rank State Change
1 Michigan 10.6% 1 Rhode Island 4.8%
2 Rhode Island 10.0% 2 North Carolina 4.0%
3 South Carolina 9.5% 3 Nevada 3.9%
4 California 9.3% 4 Idaho 3.7%
5 Nevada 9.1% 5 Indiana 3.7%
47 Utah 4.3% 47 Iowa 0.8%
48 Nebraska 4.0% 48 Arkansas 0.7%
49 South Dakota 3.9% 49 Wyoming 0.3%
50 North Dakota 3.5% 50 West Virginia 0.3%
51 Wyoming 3.4% 51 North Dakota 0.3%
Source: U.S. Department of Labor and Wachovia

The housing slump is still very much the driving force behind the deterioration in
labor market conditions. California regained the title of ‘most job losses’ over the
past year with the December data, a title that had been held for several months by
Florida. Those two states are racing neck-to-neck for the biggest housing-related
employment losses. Residential construction and all the associated industries, such
as building products, mortgage finance and retailing, have been hit hard in both
states. The current slump will likely go down as one of the worst ever in the modern
era for both states. That said, the long-run positive fundamentals for California and
Florida will ultimately reassert themselves and help drive a recovery. Unfortunately,
that turnaround is still a few years away. We expect Florida may lose another
200,000 jobs or more through the rest of the cycle and the unemployment rate could
reach 10.5 percent by late this year or 2010. California will likely continue to shed
jobs as well ultimately losing upwards of 700,000 before the end of the cycle with an
unemployment rate that ultimately will likely exceed 11 percent.
Texas employment growth over the past year is still a strong 125,000 jobs—the
largest gain in the nation. However, nonfarm employment peaked in the state in
October and has begun an accelerating descent, off 37,000 jobs in the last two months
alone. Once one of the last hopes for steady growth in a national slowdown, even

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State Employment: December 2008
January 28, 2009 REGIONAL ECONOMIC COMMENTARY

Texas has succumbed to the pressures of a global financial crisis, collapsing

commodity prices and what will likely be the deepest recession in more than a half
century.
North Carolina, like Texas, was once considered a glowing star in a dimming
economic sky, but a sharp downturn in recent months has hit the Tar Heel state
particularly hard. While best known recently for its growth in high technology and
financial services, North Carolina also has one of the nation’s largest factory sectors.
The state’s manufacturing, construction and professional & business service sectors
have lost more than seven percent of their respective employment bases over the past
year. The unemployment rate has leapt higher as a result of the job losses and near
record population growth in 2008. The unemployment rate now stands at 8.7 percent
and is second only to Rhode Island in the pace of increase over the past year.
While we would like to point to some pockets of optimism across the country, there
simply are not many to identify. Reductions in output and employment are
unusually broad based and are impacting even traditionally recession-resilient areas
like health care, education, and state and local governments. As a result, even states
that traditionally hold up well in recessions are being hurt. While the breadth of this
downturn is unprecedented, the hardest hit areas are not all that surprising.
Manufacturing is taking a huge hit, which is impacting manufacturing-intensive
areas in the Midwest, the South and California. Residential construction is the other
notable weak spot and areas where homebuilding boomed during the past decade,
such as Florida, California, Arizona and Georgia, are being disproportionately
impacted. Finally, one of the brightest spots for the economy had been energy and
commodity production, which had helped boost Texas and the Rocky Mountain
states. The global economic slump has put an end to the commodity boom, however,
and even these states are now feeling the heat from the slump.
Figure 3
Nonfarm Employment Growth
(Year-over-Year Percent Change)

December 2008
<-2.5%
-2.5% < -1.9%
-1.9% < -1.3%
-1.3% < -0.5%
>-0.5%

Source: U.S. Department of Labor and Wachovia

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 State Employment: December 2008
January 28, 2009 REGIONAL ECONOMIC COMMENTARY

Figure 4
Civilian Unemployment Rate

December 2008
<5.1%
5.1% < 6.2%
6.2% < 7.0%
7.0% < 8.0%
>8.0%

Source: U.S. Department of Labor and Wachovia

Figure 5
Change in Civilian Unemployment Rate
(Year over Year Percentage Point Change)

December 2008
<1.2%
1.2% < 2.1%
2.1% < 2.4%
2.4% < 3.2%
>3.2%

Source: U.S. Department of Labor and Wachovia

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Wachovia Economics Group

John E. Silvia, Ph.D. Chief Economist (704) 374-7034 john.silvia@wachovia.com

Mark Vitner Senior Economist (704) 383-5635 mark.vitner@wachovia.com
Jay H. Bryson, Ph.D. Global Economist (704) 383-3518 jay.bryson@wachovia.com
Sam Bullard Economist (704) 383-7372 sam.bullard@wachovia.com
Anika Khan Economist (704) 715-0575 anika.khan@wachovia.com
Azhar Iqbal Econometrician (704) 383-6805 azhar.iqbal@wachovia.com
Adam G. York Economic Analyst (704) 715-9660 adam.york@wachovia.com
Tim Quinlan Economic Analyst (704) 374-4407 tim.quinlan@wachovia.com
Kim Whelan Economic Analyst (704) 715-8457 kim.whelan@wachovia.com
Yasmine Kamaruddin Economic Analyst (704) 374-2992 yasmine.kamaruddin@wachovia.com

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