Almost a year ago, the collapse of the financial sector shattered the foundations of the U.S. economy. U.S. stocks experienced their worst two-day slump since 1987. Lehman Brothers Holdings Inc. filed for Chapter 11 bankruptcy protection. Congress passed the Troubled Asset Relief Program. And the Federal Reserve took unprecedented steps to stabilize and re-liquidate the U.S. and global financial system. The impending fear at the time was that a prolonged contraction of the financial sector would preclude short-term recovery and stifle the potential for long-term economic growth.
U.S. financial institutions were the first to react to the crisis by slashing their workforces. Over-leveraged and under-capitalized financial institutions reported tens of thousands of job cuts and severe cuts in bonus and salary pay through the fourth quarter of 2008. Given the sector’s pivotal role in inducing the current crisis, one might expect the financial industry to still be shouldering a disproportionate share of the job losses since the start of the Great Recession 18 months ago. The financial sector is still shedding jobs, but new state employment data released today by the Bureau of Labor Statistics confirms these job losses overall are lower than in other sectors of the economy.
The map above shows which states and regions are experiencing the worst job losses and highest unemployment rates in the country following 18 consecutive months of declines in payroll employment. States with the greatest share of financial jobs as a percent of their total workforces—Delaware, Connecticut, New York, South Dakota, Nebraska, and Rhode Island—have fared relatively well in the downturn, except for Rhode Island, which has the 2nd highest unemployment rate in the country.
The year-on-year percent change in financial sector employment hit a record in June 2009, declining 5 percent since June 2008—the biggest 12-month decline in payroll jobs in this industry since the Bureau of Labor Statistics began publishing the series in 1940. But payroll cuts in the financial sector have been small relative to other sectors of the economy. For example, while the financial services sector has lost 5.9 percent of its jobs since the Great Recession began in December 2007, construction has lost 17.1 percent of its jobs, and manufacturing has lost 14.0 percent.
Of the 6.5 million jobs lost since December 2007, financial services accounts for only 489,000, or 7.6 percent. Nearly two-thirds of the losses in the financial sector have been in finance and insurance, while the remaining one-third has been in real estate and rental and leasing.
Construction and manufacturing, in contrast, have shed 1.3 million and 1.9 million jobs, respectively, over the same period, accounting for almost half (49.6 percent) of the total jobs lost to date. Further, professional and business services have cut 1.5 million employees since the start of the recession, accounting for another 23 percent of total jobs lost.
There is emerging evidence that the financial industry may be pulling out of the recession faster than other industries. Earlier this week, several of the nation’s largest banks released their second quarter earnings for 2009: Goldman Sachs Group Inc. posted record profits of $3.44 billion; JPMorgan Chase & Co. reported profits of $2.7 billion. Just this morning, Bank of America Corporation and Citigroup Inc. announced profit and earnings of $3.22 billion and $4.28 billion respectively, for the second quarter. This is the second-straight quarter of profitability for all four companies, which less than a year ago received a total of $125 billion ($10 billion to Goldman Sachs, $25 billion to JPMorgan Chase, and $45 billion each to Bank of America and Citigroup) in federal financial support through the TARP rescue program.
Both Goldman Sachs and JPMorgan Chase repaid that money in full earlier this year. Bank of America and Citigroup have yet to repay the TARP funds, though Bank of America’s CEO Kenneth Lewis said in an interview in March 2009 that they will be able to repay the money later this year or by early next year, depending on the economy.
For many Americans now looking for work, the news of the nation’s major banks’ posting profits must be bittersweet. The overall labor market picture remains grim. Employers shed 467,000 jobs last month; unemployment climbed to 9.5 percent. While the health of the major financial institutions is a necessary component of recovery and growth, it may be hard to swallow given their role in creating the present crisis.
Featured this month in our regular state employment column are states with the largest concentration of jobs in the financial sector. Connecticut, Delaware, New York, South Dakota, Nebraska, and Rhode Island all have 7 percent or more of their workforces employed in finance-related work, a greater share than any other state. South Dakota and Nebraska were featured last month as two of the states with comparatively low unemployment rates, experiencing less dire labor market conditions than others across the country.
Although the financial sector is contracting, with 27,000 jobs eliminated in June and 256,000 disappearing over the last six months, the states with the largest concentration of jobs in the industry are not performing atypically worse than other states around the country, with the exception of Rhode Island. In fact, all the states featured this month, excluding Rhode Island, have an unemployment rate lower than the national average.
Connecticut
Connecticut is “the hedge fund capital of the world” and is ranked the third most popular center for hedge funds globally, according to HedgeFund Intelligence, a world provider of hedge fund news and data. About 30 “Global Billion Dollar Club” hedge funds with assets equal to approximately $170 billion are headquartered in and around Greenwich, Stamford, and Westport alongside some of the nation’s major insurance companies.
Connecticut’s unemployment rate reached 8 percent in June, up 3.1 percentage points since December 2007. There are 31 states with higher unemployment rates than Connecticut. Employers in the state have shed 65,600 jobs since the start of the recession, 6.7 percent of which have been in the financial sector. Payroll employment in the state’s financial sector fell 0.3 percent in June. In the same month, 8.5 percent of Connecticut’s workforce was employed in finance-related work, up 0.1 percentage points from 18 months earlier.
Delaware
Delaware’s “debtor-friendly” laws and lax regulatory environment have enticed countless businesses and financial institutions to relocate to within its borders. Credit card companies, in particular, have taken advantage of Delaware’s weak usury laws, meaning the state’s low caps on interest rates that can be charged to consumers. JPMorgan Chase, MBNA, Morgan Stanley (Discover), and HSBC are four of the top ten credit issuers in the country; all are based out of Delaware.
As of June, 10.7 percent of the state’s workforce was employed in the financial sector, the highest share of any state in the country. Delaware lost 2,500 jobs in June, 12 percent of which were finance-related. Since the start of the Great Recession in December 2007, employers in the state have laid off 24,500 workers, or 5.6 percent of Delaware’s workforce. The state’s unemployment rate climbed to 8.4 percent, up 4.6 percentage points since the start of the current recession.
New York
Goldman Sachs Group, Inc., JPMorgan Chase & Co, Citigroup, Inc., and Morgan Stanley are some of the many financial institutions headquartered in New York City, the financial capital of the United States . The state of New York has the third highest concentration of jobs in the financial sector in the country, with 8 percent of its workforce employed in finance-related work. Nearly three-quarters of the state’s financial sector employees work in finance and insurance, while just over one-quarter work in real estate and rental and leasing.
The state’s unemployment rate climbed to 8.7 percent in June, up 4.1 percentage points since the start of the Great Recession. Employers in New York have shed 193,700 jobs since December 2007, 23.4 percent of which have been finance-related. The state has the second-highest cumulative job losses in the financial sector only after California, with a total of 45,400 positions eliminated over the last 18 months.
South Dakota
South Dakota, like Delaware, has enacted weak usury laws in order to attract financial businesses. Citibank, one of the top ten credit card issuers in the country, has set up its credit card operations in Sioux Falls, South Dakota. Sioux Falls is ranked 9th of the top 20 financial service industry clusters in the country, according to DRI/McGraw-Hill.
South Dakota has the third-lowest unemployment rate in the country, at 5.1 percent in June, which is 4.4 percentage points lower than the national average. As of last month, 7.4 percent of the state’s workforce was employed in finance-related work. South Dakota has the fourth-highest concentration of jobs in finance of all states in the country. Employers in South Dakota have shed 4,400 jobs since December 2007, 25 percent of which have been in the financial sector.
Nebraska
Nebraska’s “low taxes, superior regulatory environment, and proactive legislature,” according to the Greater Omaha Economic Development Partnership, have attracted insurance companies like AFLAC, Pacific Life, and West Coast Life to the state. Warren Buffett’s Berkshire Hathaway also operates out of Nebraska. The city and its surrounding metropolitan areas have one of the highest density financial services clusters in the country.
Nebraska has the fifth-highest concentration of financial sector jobs in the country; 7.2 percent of the state’s workforce is employed in finance-related work. The state’s employers have shed 14,800 jobs since the start of the recession, only 0.7 percent of which have been in the financial sector. Nebraska has lost 0.1 percent of its finance jobs since December 2007. The state has the second lowest unemployment rate in the country, 5 percent, which is 4.5 percentage points lower than the national average.
Rhode Island
Rhode Island’s financial services sector is the largest contributor to the state’s gross state product. Some of the state’s top financial services employers include Citizen’s Financial Group, Bank of America, Metropolitan Insurance, and Fidelity Investment.
Rhode Island’s unemployment rate is the second-highest in the country, climbing to 12.4 percent in June, up 6.4 percentage points since December 2007. Only Michigan has a higher unemployment rate. Rhode Island is the only state featured this week with an unemployment rate above the national average. Employers in the state have shed 25,500 jobs since the start of the current recession, which is 5.2 percent of its workforce. Rhode Island has 7 percent of its employees working in the financial sector. Financial firms in the state have cut 1,400 positions over the last 18 months, which accounts for 4.1 percent of total finance jobs in the state.