The Pennsylvania Policy Blog

The Center for Workforce Information and Analysis has released new data on unemployment rates by county for Pennsylvania during the month of May. There are nine counties (all rural) with double digit unemployment rates.  With the exception of Philadelphia (9.6%) 20 of the 21 counties with unemployment rates at 9% or higher were rural counties (many in the Northwestern part of the state).  For a static picture of May unemployment rates see the last figure below.  The highest unemployment rate in the state is 16.4% in Cameron county and the lowest unemployment rate is in Centre county at 5.6%.  In related and unpleasant news the state expects 25,000 people to exhaust their unemployment benefits this July.

Here is an updated heat map showing the change in unemployment rates by month since December 2007 the start of the current recession.

What follows is the heat map from just December 2007:

Here is the heat map for May 2009 (again note the charcoal color for unemployment rates >10% tend to be in the rural portions of the state):

The Pennsylvania Coincident Index, which is often a useful tool for assessing the health of the current economy, is calculated monthly by the Federal Reserve Bank of Philadelphia based on state-level indicators such as nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index.  When The State of Working Pennsylvania 2008 was released, the PA coincident index had fallen for six consecutive months.  Since 1979, whenever the index has fallen for four consecutive months, the economy was in recession.

The current index has fallen for the past 18 months.  It has declined by 11 percent since its peak in November 2007, one month prior to the official start of the current recession.  The Pennsylvania coincident index has now fallen more than during all previous recessions except for the 1981 recession.  The PA index has been decreasing by an average of 1.3 percent over the last seven months, and if this rate continues, the index will have fallen by 15 percent (the magnitude of the drop in the bleak 1981 recession) before the end of this coming August.  If the unemployment rate continues to rise at the pace by which it has been increasing over the past seven months, however, the PA unemployment rate will not reach the level it did in the 1981 recession (12 and a half percent) until June 2010.

The US Employment and Training Administration released new data today on initial claims for unemployment insurance in Pennsylvania.  During the week ended June 13th there were 43,263 initial claims for unemployment insurance, an increase of 3,191 from the previous week. Looking at the 4-week moving averages during comparable points in the year initial claims are up 62% over 2008 and 79% over the levels of 2007 before the recession started.  As this recession drags on year-over-year comparisons are becoming less and less useful, initial claims rose slowly through most of 2008 before exploding in October as the world wide financial panic erupted.

It looks like claims activity has peaked but we are not out of the woods yet.   The fact that claims activity continues to remain in the neigbhorhood of 30,000 to 40,000 where it has been since October 2008 clearly indicates that the pace of job loss in the Pennsylvania will be pushing the unemployment rate ever higher in the months ahead.  The Obama economic team expects national unemployment to move over 10% in the next several months (current rate is 9.4%).  Because the epicenter of this recession was elsewhere PA’s unemployment which is currently at 8.2% will take a bit longer to hit 10% but the claims data clearly signal that the unemployment rate here in PA will continue to follow the US rate up.

See Calculated Risk for a discussion of the national numbers.

In April, the unemployment rate for the Pittsburgh Metropolitan Statistical Area reached 7.3 percent, the highest it has been since October 1993.  However, Pittsburgh’s unemployment rate is lower than both the Pennsylvania rate (8.2 percent) and the United States rate (9.4 percent).  The current Pittsburgh rate is higher than it was at any point during the previous recession but is lower than the rates experienced during the 1981 recession which peaked at over 15 percent.

Pittsburgh lost 2,500 jobs in May and nearly 27,000 since the recession began in December 2007.  Since the financial crisis began in October 2008, Pittsburgh has lost over 3,800 jobs per month on average, almost two and a half times the rate of average monthly job loss in the previous recession.

Atrios (based in Philly) was forced to depart from his regular schtick “look at those crazy people in Gullyvornya [California]” to note that the crazy has spread to Pennsylvania. He points us to John Baer who reports on a modest proposal from a Democratic legislator from Western Pennsylvania:

“The Western Pennsylvania Democrat in the hallway says we should do this: With no GOP support for a tax increase and with questionable Democratic support (though His Edness is scheduled to meet today with House and Senate Dems to sell it), pass a big-cuts budget without new taxes and see what happens.”

And then there is this gem:

“(It also could give Democrats an I-told-you-so political label, as opposed to the tax-and-spend label Republicans hang on them now.)”

So the political strategy here is to make the recession worse because otherwise the Republicans will call the Democrats names.  Once the recession is worse Democrats can point to the fact that they lacked the courage to do the right thing as evidence of why you should vote for them in the future, you know because in the future they will do the right thing.  Brilliant!  I wonder why more people don’t try to gain political advantage by demonstrating the opposite of leadership as evidence of why they should be in the leadership?

I See Green Shoots:

This morning Paul Krugman directs us all to a website that is tracking what appeared in the Wall Street Journal on the same day in 1930. Krugman points to this entry from 1930:

“Col. Ayres, VP Cleveland Trust, predicts an abrupt recovery in stock and commodity prices by Labor Day due to current consumption exceeding production. Distinguishes between two types of depression, “V”-shaped and “U”-shaped.”

Col. Ayres has a modern day counterpart in the Pennsylvania Legislature, the following again from Baer’s article:

“And it’s possible that an improving economy decreases the need for higher taxes. As one GOP lawmaker puts it: “What if we increase taxes this year and the economy recovers next year and we face voters in 2010 trying to explain why we hiked their taxes?”"

The Great Depression would indeed continue to get worse well past Labor Day of 1930.  While there is a strong consensus that the current downturn will not be as prolonged as the Great Depression (although Krugman does note that the work of Eichengreen-O’Rourke is showing that globally this recession is still as bad as the Great Depression) there is good reason to believe that labor markets here in the Pennsylvania will be following the Col Ayers “U” shaped recovery rather than the “V” shaped recovery.

For instance following the 2001 recession, which officially ended in November 2001 unemployment rates in Pennsylvania continued to rise for another 17 months before peaking in the 2nd quarter of 2003.   Even if you assume that the recovery begins this June a similar pattern would imply a peak in unemployment rates in November 2011.

While corporate profits (and associated tax collections) should rebound more quickly the growth in personal income and sales tax collections which account for about 70% of the general fund revenues will be more subdued likely resulting in continued budget problems over the next two years.

And don’t forget that in May Pennsylvania shed 17,700 jobs and initial claims for unemployment insurance in the first week in June remain near peak levels making the hope that June will be the start of the recovery pretty unlikely.

Provided a significant amount of American Recovery and Reinvestment Act (ARRA) spending begins to hit the economy in the 3rd and 4th quarter we might begin to see some actual green shoots.  But tax collections are likely to remain insufficient for the state to avoid shortfalls in the next couple of years.

The Commonwealth’s budget shortfall is not going to magically disappear and there is no responsible way for the Legislature to avoid making tough choices including finding ways to raise new revenue.