Editor's Note: This report is based on survey data from December 2022 that was published in January 2023. This is the most recent data available. (Source: Bureau of Labor Statistics)

The U.S. unemployment rate dropped two-tenths of a point, returning to the historically low rate of 3.5% for the third time in the past six months to close out the year.  

Despite the unemployment rate dropping across the country, seven states saw increases in their individual unemployment rates, ranging from plus 0.1% to plus 0.3%.  

Those state-level unemployment rate increases, however, were offset and exceeded by unemployment rate decreases reported across another five states, while the remaining 38 states were essentially unchanged.

Below is the breakdown of the Bureau of Labor Statistics’ (BLS) market employment summary for January 2023.

States With the Highest Unemployment Rates

Not only was Nevada the state with the highest unemployment rate for the second month in a row, but also it was the second month in a row that Nevada registered the largest unemployment increase over the month—up last month from 4.9% to 5.2% for a plus 0.3% increase.

Minnesota, Oregon, Virginia, and Washington each registered a plus 0.2% unemployment rate increase, while Nebraska and Vermont each saw 0.1% increases.

In total there are 11 states and Washington, D.C. that have unemployment rates that are currently higher than the U.S. average of 3.5%.

Over the course of the year, four states saw net increases in their unemployment rates, the largest of which was Oklahoma at plus 0.6%.  

That said, it’s important to note that Oklahoma began the year with an unemployment rate of 2.8%, so a 0.6% climb to 3.4% still leaves Oklahoma’s unemployment rate below the national average of 3.5%.

The other states that registered unemployment rate increases were Arkansas, which saw its unemployment rate increase from 3.3% to 3.6% over the year; Indiana, which rose 2.7% to 3.1%; and Nebraska, which increased 0.3% from 2.3% to 2.6%.  

States With the Lowest Unemployment Rates

Utah claimed the lowest unemployment rate in the country for the second straight month at 2.2%, followed by North and South Dakota at 2.3% each.  

In total, 14 states in total had unemployment rates lower than the U.S. average last month.

Maryland registered the largest decrease in unemployment rate over the course of the month with a minus 0.3% rate reduction. Colorado saw the next largest unemployment rate reduction at minus 0.2%, while Florida, Idaho, and Montana each saw their unemployment rates go down by 0.1%.

Looking at 2022 as a whole, 36 states registered unemployment rate reductions with the largest going to New Mexico at minus 2%, while California and New Jersey each registered a minus 1.7% drop in unemployment rate.

States With New Job Losses

There was only one state that incurred a net loss in payroll entries last month, and that was West Virginia, which saw about 10k jobs cut, representing approximately 1.4% of total jobs statewide.  

The remaining 49 states, as well as Washington, D.C., saw no significant change in job figures last month.

States With New Job Gains

Although no state registered an increase in their jobs figures last month, during 2022 42 states and D.C. saw increases in their total number of jobs, while the remaining eight states held steady.  

The largest number of job additions across 2022 occurred in Texas and California, which both increased their payrolls by more than 600K entries.  

Texas also led the way with the largest percentage increase in job growth over the year at plus 5%, followed by Florida at 4.8%, and Oregon at 4.2%.

Mployer Advisor’s Take

Although the unemployment rate across the country has returned to lows registered only a handful of times in the past 50 years, this latest unemployment rate reduction is primarily reflective of decreased participation in the labor market.

In total, the Federal Reserve raised interest rates seven times in 2022, and more hikes are expected in the year ahead as the Fed continues its quest to cool an overheated labor market.

Thus far, inflation has been slowing faster than the labor market has been cooling, yet the Fed is showing no sign of adjusting course accordingly. This could be, in part, because there are more than a few factors indicating a potential economic downturn in the months ahead.

Ultimately, these interest rate hikes will almost certainly yield their intended outcome—hiring will slow and the unemployment rate will rise as a result. What remains to be seen is whether the hikes will dampen the potential negative effects and the severity of any economic downturn, which may in part have been catalyzed by those interest rate hikes.

In any case, should recession be on the horizon, facing those headwinds with somewhat high interest rates already in place will at the least provide some cushion, allowing for interest rate cuts in the name of reversing the downward trend back toward economic growth as quickly as possible.

Looking for more exclusive content? Check out the Mployer Advisor blog, or review last month's market employment summary here.

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