By Tom Ozimek
Red states, on the whole, recorded the lowest rates of unemployment in the United States in August, although blue states led the way in terms of the sharpest reduction in their rates of unemployment over the past year, new government data shows.
The top seven states with the lowest unemployment rates in August were Alabama (3.1 percent), Idaho (2.9 percent), Nebraska (2.2 percent), New Hampshire (3.0 percent), South Dakota (2.9 percent), Utah (2.6 percent), and Vermont (3.0 percent), according to a Sept. 17 release of state-level unemployment data by the Commerce Department.
With the exception of Vermont, which has a Democrat-controlled state House and Senate and a GOP governor, all have Republican trifectas, meaning Republicans hold the governorship, a majority in the state Senate, and a majority in the state House.
“More than twice as many GOP-led states are below the national unemployment rate average than Democrat-led states. The consistent, top performance of Republican-led states is no coincidence,” the Republican Governors Association (RGA) wrote in a tweet, parsing the data according to the number of states above and below the 5.2 percent national unemployment rate.
The seven states with the highest unemployment rates in August were Hawaii (7.0 percent), California (7.5 percent), Connecticut (7.2 percent), Illinois (7.0 percent), New Mexico (7.2 percent), New Jersey (7.2 percent), and New York (7.4 percent). All seven have Democrat trifectas.
Blue states, meanwhile, led the way in the sharpest declines in the unemployment rate over the 12 months through August, with the top seven all Democrat-led. California’s unemployment rate over the past year fell 4.8 percentage points, Hawaii’s dropped 7.1 percentage points, Illinois’ fell 4.1 percentage points, Massachusetts’ dropped 4.3 percentage points, Nevada’s and Rhode Island’s both declined 6.8 percentage points, and New York’s fell 4.3 percentage points.
Base effects are a likely explanation for why the over-the-year rebound in blue state employment was so pronounced. Blue states tend to be more reliant on service industries, especially ones related to travel, leisure, and hospitality, which were hit by the pandemic disproportionately hard, driving up joblessness more sharply than in red states, where manufacturing and agriculture play a bigger role.
Also, blue states generally took more aggressive steps in responding to the pandemic, with Democrat leaders tending to impose stricter measures than their Republican counterparts, which may have pushed the unemployment rates in blue states artificially higher. Last October, a study of lockdown measures in the states was carried out by researchers at the personal finance site WalletHub, concluding that the states with the most restrictions tended to have the highest unemployment rates. Easing of restrictions and economic reopening may have thus led to a proportionally bigger bounce-back in employment.
The Commerce Department’s state unemployment report comes as Federal Reserve officials peruse labor market data to calibrate the timing for rolling back the crisis-era support measures for the economy. In response to the outbreak, the Federal Open Market Committee (FOMC) dropped interest rates to near zero and set out on a massive bond-buying program, purchasing around $120 billion in monthly Treasury and mortgage securities. While a rate hike is still a ways off, Fed officials are considering tapering the asset purchases, with investors fixated on next week’s FOMC meeting for a possible taper announcement.
While tapering is expected to start this year, the timing of the announcement, as well as the pace of the wind-down, hasn’t yet been settled.
Patrick Harker, president and CEO of the Federal Reserve Bank of Philadelphia, told Nikkei in an interview on Sept. 13 that he favors moving quickly toward a taper announcement.
“I am supportive of moving toward a tapering process sooner rather than later. When exactly that happens, the committee needs to decide. I would hope sometime this year we would be able to start the tapering process,” he told the outlet.