Mass. unemployment rate led the nation in June

The state is paying a steep price for moving aggressively to contain the coronavirus pandemic.

Mike Groll

Massachusetts recorded the highest unemployment rate in the country in June, a stark reminder of the steep price the state has paid for moving aggressively to contain the coronavirus pandemic.

The local jobless rate hit 17.4 percent in June, according to state-by-state data released Friday by the US Bureau of Labor Statistics, more than 6 percentage points above the national average. New Jersey had the second highest at 16.6 percent, while Kentucky had the lowest, at 4.3 percent.

Earlier in the year, unemployment in Massachusetts was at a near-record low 2.8 percent before surging as the deadly epidemic led Governor Charlie Baker to shut down a large swath of the economy.

The new data also show that Massachusetts has lost more jobs on a percentage basis than all but a handful of states, including tourist-dependent Hawaii and New York, the epicenter of the crisis until recently. In March and April alone, Massachusetts shed 690,500 jobs, or 19 percent of the total, wiping out the gains that followed the end of the last recession in 2009.

“It is the first time we’ve seen an [outside] shock of this magnitude in the post-World War II era,” said Donald Klepper-Smith, chief economist at DataCore Partners. “There is no reference point.”

The response Massachusetts formulated after an initial delay — requiring masks and social distancing, sharply limiting activities both inside and outdoors, and reopening at a cautious pace — is a primary reason why the job market has been hit so hard. The strategy slowed the spread of coronavirus but required putting the economy into a deep freeze that now seems to be easing as the economy begins to kick back into gear .

The other factor working against the state in the past few months was the makeup of its economy: Massachusetts is more reliant on industries that were directly affected by the shutdown and saw big job losses ― health care, education, and travel-related business such as restaurants and hotels — than the country as a whole, according to Bo Zhao, a senior economist at the Federal Reserve Bank of Boston’s New England Public Policy Center.

“In a traditional recession, education and health are more immune,” Zhao said. That’s what happened during the Great Recession, when Massachusetts didn’t fare worse than the rest of the country.

The question now is whether the sacrifices in Massachusetts will pay off as other states come to grips with the fallout from their decisions to quickly reopen. Experts point to the earlier reopening decisions by other states as the catalyst for their current surge in cases. Massachusetts, meanwhile, has seen the rate of infections fall off, after a devastating April and May.

It’s too soon to tell whether states struggling with hot spots will see their economies hurt, especially since the stats released on Friday were based on information collected in mid-June, before the latest spike in cases around the country.

Unemployment ticked up in Arizona, but the rate fell in other hot spots including California, Florida, Georgia, and Texas.

More recent data from those latter states suggest that may change: New claims for jobless benefits rose in each of them last week. And after a strong rebound that began in mid-April, consumer spending in those states is starting to flag, according to data tracked by Opportunity Insights, a research project at Harvard University. By contrast, spending in Massachusetts remains on an upswing.

Moreover, employers here added 83,700 jobs in June, as hiring by restaurants and retailers offset layoffs among government workers, the state said Friday. It was the second consecutive month of gains, following a revised increase of 55,000 jobs in May. May’s jobless rate was also revised upward 0.3 percentage point from the preliminary estimate, to 16.6 percent.

The unemployment rate can rise even when employers are adding jobs as more people, encouraged by the recovery, start looking for work. The labor force increased 130,800 to 3.67 million in June, with more residents employed or actively seeking a job.

“What I think was going on in June ... was the return to work of furloughed employees more so than people getting new jobs or new jobs being created,” said Michael Goodman, a professor at the University of Massachusetts Dartmouth. “Whether that growth is likely to persist going forward will be as much a function of public health conditions and federal policy choices as anything else at this stage.”

Those policy choices include pending decisions by Congress on whether to extend the $600 a week in extra jobless pay lawmakers added to state benefits and whether to provide $1 trillion in aid to state and local governments, whose budgets have been ravaged as the pandemic reduces tax collections from payrolls, retail sales, and corporate profits.

In Massachusetts, tax revenue in the fiscal year that ended June 30 may have fallen $6 billion short of the administration’s January forecast, according to an estimate by the Massachusetts Taxpayers Foundation.

Moreover, the fund Massachusetts uses to pay unemployment claims ran out of money, forcing the Baker administration to borrow $455 million from the federal government. Additional loans may be needed; the most recent state report on the Unemployment Insurance Trust Fund estimated the gap between employer contributions and benefit payments at $3.2 billion in the fiscal year that just ended and more than $6 billion in the current year.

Despite those fiscal obstacles, the tough public health choices made by the state may pay economic dividends in coming months if infection rates remain low.

“We should come back faster if we don’t have a setback as we open up,” said Tom Kochan, a professor at MIT’s Sloan School of Management.