Paper Economy - A US Real Estate Bubble Blog: Sinking Ships – Massachusetts vs. Rhode Island Unemployment June 2009

Friday, July 17, 2009

Sinking Ships – Massachusetts vs. Rhode Island Unemployment June 2009

Subtitle: MA Unemployment … Next Shoe Dropping!

As I had noted in my original post, historically it has been very unusual for there to be more than a 1.5% difference (either more or less) between the unemployment rates if Massachusetts and Rhode Island.

Recently though, we have seen a historically unusual spread between Rhode Island’s high and accelerating rate and Massachusetts’ far lower but now quickly rising rate.

In fact, after a short period of flattening and decline earlier in the year the latest 3.8% spread remains near the peak and nearly exceeds ALL spreads seen in at least 40 years.

This indicates that either Rhode Island’s current rate would need to fall dramatically or the Massachusetts rate would need to increase sharply…. My sense, especially in light of the financial turmoil seen since September 2008, is that Mass will be continually playing catch-up.

The latest regional unemployment report shows that, in May, the Rhode Island unemployment rate jumped to 12.4% while the Massachusetts rate jumped to 8.6%.

In June, Massachusetts experienced the single largest year-over-year increase in unemployment since the recessionary environment that followed the tech-led dot-com bust jumping 68.63% on a year-over-year basis clearly indicating that Mass has now entered a period of truly explosive unemployment growth.

Labels: economy recession, massachusetts, rhode island, unemployment rate

13 Comments:

But in Massachusetts you have Teddy Kennedy keeping the bars open.

By Anonymous, at 12:37 PM
SATT, I think it is time to update you imaginary letters on twin peaks chart.

By Anonymous, at 7:37 AM
Yes I guess looking in the rear view mirror and trying to extrapolate the future is very easy to do. Bottom line you have no idea what will happen in the future. Obviously in downturns jobs are lost, but how many jobs will be eventually lost is anybody's guess.

By Anonymous, at 7:39 AM
Anons,

Remember, I started this post last year when both the Boston Globe and many others (possibly you anons) were making claims that MA would be immune from the downturn... too many affluent, tech, univeristies, pharma, lawyers for that kind of thing!

I never predicted the level of unemployment only that it was going to go up fast.

Actually looking back at the original post, I think this spread method was really a brilliant stroke... it clearly disclosed the inevitable.

Also, since I began blogging in 2006 I have to say that I'm astonished at the sheer level of denial this area lives in...

The blogesphere/comment boards/Boston Globe are just strewn with losers who had all sorts of crackpot theories about how this area's housing market would be immune, condos would be immune, job market would be immune, economy would be immune... all completely wrong yet you turn to me to criticize.

By SoldAtTheTop, at 5:54 PM
According to my analysis, both MA and RI unemployment rates exhibit historic deviations on the order of 10 sigma (where sigma is the Gaussian standard deviation). Even though the rates exhibit a very high degree of correlation, nevertheless it is not only likely, but very likely that the two rates diverge. There is no math that says that the two rates must be within X percent of each other. The math actually says that it is very likely that the two rates can be MORE than X percent apart. The reason for this is that the correlation is a time dependent quantity (and may have something to do with the type of jobs in both states, which may have changed over time), so at this point in time the correlation may be smaller than in the past, leading to larger deviations (which are 'natural' because of the possible fat-tailed statistics at play).

By Kon, at 11:45 AM
Kon,

Look at the chart... Your math might suggest that the two rates should diverge (... for what real reason I cant even imagine) but in forty years they almost never separate more than 1.5%.

So what exactly is your point?

They haven't diverged in 40 years but now they should?

This is nonsense... the point of the post which was true when I originally posted it last year and is still true today AND is apparently really difficult for MA residents to imagine BUT THERE IS NOT THAT BIG A DIFFERENCE BETWEEN MA AND RI!

For crying out loud people... get over it!

Big deal we're as bad off as the folks in providence... WOW real shocker.

Only in MA would there be people inventing advanced statistical techniques for proving that MA is better than RI...

I'm speechless...

By SoldAtTheTop, at 1:18 PM
BUT THERE IS NOT THAT BIG A DIFFERENCE BETWEEN MA AND RI!

lol. maybe not, but RI is much smaller than MA. There are countless differences that can be pointed out and this has nothing to do with unemployment.

so why does Detroit fall into abyss and the areas outside thrive?

but you might be right. MA and RI are in New England.

By Anonymous, at 2:46 PM
Well the point of the original post was simply that we here in New England are all essentially in the same boat.. we always have been and likely always will be... its easy to see the simple correlation in the data.

Last Sept you still had many suggesting that because WE (... who ever the heck WE is anyway...the people of the Boston metro area?... inside 128?... Outside? affluent... everyone... college professors? gas station attendants?... who the heck is WE?) have Harvard and MIT and pharma and biotech and software.. WE would be immune... it was nonsense then and still is nonsense... as if those concepts of institutions are enough to thwart a major national economic decline... like that has anything to do with it...

Anyhow... looks like unemployment will be really severe in MA this go around... and MA is starting to look like a perfect prototype of a long trending declining economy... boomed in the 90s then busted in 2000 and has essentially been in a bust ever since.

By SoldAtTheTop, at 3:36 PM
Wasn't RI's tax increases back a few years blamed for causing much of the increase in their unemployment rate/problem, even before some of the 'stuff' started hitting the fan elsewhere, including it's closest neighbors in the region MA and CT?

Sort of a micro version/study of where we'd find the Nation if the kids in DC get their way.

Raise taxes while in a budget crunch but do NOT cut any spending.

Kill the goose, rob all the golden eggs and spend it all. Then, when it all works through as it will, scratch your head and wonder what went wrong.

!

By Anonymous, at 3:43 PM
Kon,

Look at the chart... Your math might suggest that the two rates should diverge (... for what real reason I cant even imagine) but in forty years they almost never separate more than 1.5%.

So what exactly is your point?

Ok, take a deep breath. My area of interest (as an investment adviser) is non-Gaussian statistics. While the data is limited, it appears that regardless of what I believe in, using the math which I do admit not a lot of people understand, it can be shown that both MA and RI unemployment figures may be generated by a statistical distribution with so-called 'fat' tails. All this says is what I described above - variations can happen, once in 40 or once in 400 years. Nobody really knows. I'm sorry I have to be this vague. This statistics simply says that two distributions which are 'fat' tailed can really deviate from each other more than the norm would suggest. This is an undisputed fact.

They haven't diverged in 40 years but now they should?

This is nonsense... the point of the post which was true when I originally posted it last year and is still true today AND is apparently really difficult for MA residents to imagine BUT THERE IS NOT THAT BIG A DIFFERENCE BETWEEN MA AND RI!

I understand your frustration, but my argument is not what you are used to hearing. There is a difference, in my opinion - it is the nature of the job market. MA is more bio/hightech/defense, while RI is probably mostly financial, which got hit more this time around - this may easily explain the difference, but unlike my previous assertion, this is a hypothesis I have not tested.

For crying out loud people... get over it!

Big deal we're as bad off as the folks in providence... WOW real shocker.

Only in MA would there be people inventing advanced statistical techniques for proving that MA is better than RI...

I'm speechless...

I wish I could say I invented this, but I'm afraid that Mandelbrot, Nasim Taleb and a bunch of people smarter than myself invented this type of statistics and the tools to alanyze data. I am merely trying to use the tools carefully and without reading too much into the conclusion. This is all I can say about these data sets:
1) Both appear to be generated by a distribution with fat tails
2) There appears to be a high degree of correlation between the numbers
3) Correlation is time dependent, and has been in constant motion for whatever reasons

Conclusion: Any reasonable statistician would make an inference that it is POSSIBLE that a LARGER THAN NORMAL difference in rates can simply be explained by statements 1)-3). Remember, I'm making absolutely NO hypothesis about the data or the reasons. This is as unbiased as it gets in statistics. I can not even tell you WHY its once in 40 years that the difference crossed the threshold. Simply that this difference CAN be explained by the STATISTICS describing both rates. We can argue whether MA is similar to RI or not, which I'm sure they are more similar than not, but it is hard to argue with the facts and properly applied statistics. If you like I can elaborate more, or send you some papers which you may find interesting

By Kon, at 5:31 AM
Ok, just to keep things in perspective. I do believe that MA unemployment rate could rise more, and the RI one as well. The US rate will also rise, maybe even dramatically, but this in no way invalidates the statistical analysis above! I can say all these things, and still claim that whatever the reasons, even if the rates will still go up, the spreads can be accounted for by the statistics of the unemployment rates.

By Kon, at 6:34 AM
So this is the black swan of MA and RI unemployment rate spread?...

Look... MA unemployment is going up... fat tails and all.

By SoldAtTheTop, at 10:25 AM
You can look at it this way, though technically this is not a "Black Swan", which implies something out of the ordinary (i.e. unexpected), but my claim is that this is an expected result, simply owing to the fact that many (most) economic variables behave in this fashion.

Here's another way to think about it. If you have two quantities which oscillate randomly, and you want to know the 'distance' between the two, provided that you know that a process with a 'fat-tailed' distribution generated both quantities, it is not uncommon that the 'distance' is itself a 'fat-tailed' quantity. This way it is easy to imagine that the 'distance' can have large outliers which are more common than our intuition would suggest.

By Kon, at 11:06 AM