Goldman’s Jan Hatzius and Zach Pandl are out with an interesting note on the Reversal of “Fortunes in State labour Markets.”
The gist is: The sand states (states like Arizona, California, Nevada, and Florida), which suffered the worst job market collapse during the bust, are now leading the way in job market growth, as their economies recover, and household balance sheets repair.
This may at first seem obvious in that you’d expect the hardest hit areas to be seeing the sharpest comeback, but there are two important aspects to their findings.
The first is that this is not just the result of these being “high beta” states that have moves that exaggerate the national cycle:
One potential question about our results is whether they might simply reflect a greater sensitivity of the sand states to national labour market conditions—in other words, that these are “high beta” states. We tested this formally by regressing sand state employment growth on national employment (We used data from 1960 to 2005 in order to avoid biasing the estimates by the housing boom-bust period itself.) The results showed that the sand state “beta,” taken as a whole, was not statistically different from one. Excess sensitivity to the national business cycle is thus not a likely explanation for the better performance of these states.
And the second key point is that this just isn’t about a recovery in construction.
This chart shows 2011 job gains for bubble states vs. normal states excluding construction.
Photo: Goldman Sachs
Pandl and Hatzius make two points:
- The balance sheet recession is ending.
- There’s probably a lot of room for improvement in the national unemployment rate, just by improvement in these states, before we start seeing bottlenecks and inflation.