Five States That Are Struggling With Unemployment

Hard-hit and slow-to-recover job markets in New Jersey, New York, Hawaii, Illinois and Alaska might be adding some pressure to Fitch’s negative credit outlooks.

Those five were among 16 states that took the toughest hits to employment last spring, and that have seen the slowest recovery from the bottom. The other two states that have negative credit outlooks from Fitch—Nevada and Kentucky—have seen unemployment improve slightly faster than the median state, according to research by Fitch Ratings.

“All states saw significant employment losses during the height of shutdowns due to the coronavirus pandemic from February through April 2020,” the rating provider noted. The depth of employment declines and pace of recoveries has varied widely, with differing impacts on state economies and budgets.

Hawaii and New York have the best finances of the five states most at risk of a downgrade, with AA+ ratings. Fitch issued its negative outlooks for both in April. The company downgraded Alaska to AA- and New Jersey to A- around the same time while announcing negative outlooks. Illinois debt was downgraded to BBB- with a negative outlook, also in April.

“Fitch considers most states well-positioned to deal with resulting budget volatility at current rating levels but the risk of a prolonged severe economic contraction consistent with Fitch’s coronavirus downside scenario could compound revenue declines that erode states’ gap closing abilities,” the company cautioned.

The median peak-to-trough employment loss was 13 percent, with states recovering on average 45 percent of those losses to date. Other states struggling against those metrics include Massachusetts, California, Delaware and Minnesota. Among those best weathering the storm are Idaho, Mississippi, Utah and Georgia, according to Fitch’s assessment of Bureau of Labor Statistics (BLS) data. All of those states have stable credit outlooks.

Fitch observes that further private and public sector layoffs are expected the longer it takes to contain the coronavirus. “State policy and budget responses, the extent of any additional federal aid for the economy at large, and state and local governments specifically, and the effectiveness of state and national efforts to reduce the virus’ spread will also be critical to longer-term employment and economic recovery,” the company stated.

Since Fitch is in the rating business, it also issued an assessment of the data on which its relying. It noted that BLS has cautioned that the pandemic has affected collection of its Current Employment Statistics (CES), leading to modifications to its reporting model. “Given the compounding volatility inherent in the rapidly evolving labor market, Fitch considers the CES data to be a useful indicator of economic trends, but not as definitive as in pre-pandemic times,” the company stated.