States within Cleveland Fed’s district have reached rate of unemployment consistent with normal turnover

To gauge the state of state labor markets, it’s helpful to examine how far a state’s current unemployment rate is from its normal, or long run trend, unemployment rate. A difference between the current and normal rate usually indicates underutilized resources in the labor market, or labor market slack.

Federal Reserve Bank of Cleveland researchers introduce a framework, using inflows to and outflows from unemployment, that enables them to measure long-run trends in unemployment at the state level. They calculate the normal unemployment rate for each of the four states that lie wholly or in part within the Bank’s district and compare it to the national normal. They find that the four states—Ohio, Kentucky, Pennsylvania, and West Virginia—have almost no labor market slack left as of the end of 2016:Q2, similar to the aggregate US labor market.

“As of the second quarter of 2016, the estimated long-run trend rate of unemployment for Ohio is at 5 percent,” say the researchers. “Corresponding numbers for Kentucky, Pennsylvania, and West Virginia are 5.5 percent, 5.7 percent, and 6 percent, respectively. The national trend, in comparison, is 5.2 percent.”

The researchers say the range of trend unemployment rate estimates is very similar to the range of actual unemployment rates for each of the four states and the nation, indicating that the labor market has removed most of the cyclical slack that appeared during the recession.

Read The State of States’ Unemployment in the Fourth District

Federal Reserve Bank of Cleveland

The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.

The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.

Media contact

Doug Campbell, doug.campbell@clev.frb.org, 513.455.4479