In this piece, we will take a look at the cities with the lowest employment rates in the US.

Employment is one of the hottest topics in America right now. This is because the Federal Reserve has kept a close eye on this figure over the course of the past couple of years which have been quite turbulent for the American economy. Interest rates are at 23 year high levels right now, and one reason for this is employment and the labor market.

The Fed has raised interest rates to cut inflation, and along with commodity shocks and global events, employment also has a role to play here. The lower the employment rate is, the higher the demand for jobs is. This allows prospective employees to negotiate higher salaries, which leaves them with more money to spend. Naturally, this also causes inflation to pick up, and over the course of their rate hike cycles, Fed officials have repeatedly stated that they would like a soft labor market to precede potential interest rate cuts.

Since we’re on the topic of economic data, the tail end of April 2024 and the start of May provided the latest facts and figures for US GDP growth, the labor market, and employment rates. The US GDP grew by 1.6% in Q1 2024, at its slowest pace in more than a year. The unemployment rate stood at 3.9% in April 2024, as it continued to range between 3.7% and 3.9% since August 2023 according to the Labor Department. This data provided a mixed set of conclusions, as policymakers generally expect unemployment to tick up as well due to a tighter business environment.

Apart from the unemployment data, another set of numbers that are related to the employment rate is unemployment benefits. Data for these benefits was released in the final week of May, and it saw the labor market remain robust. Also released by the Labor Department, unemployment claims for the week ending on May 18th dropped by 8,000 and stood at 215,000. This undershot analyst estimates and also marked the second consecutive weekly drop. This report also came with the figures for the seasonally adjusted insured unemployment rate, which measures the percentage of people on state provided unemployment insurance. During the week ending on May 11th, this rate stood at 1.2% to stay flat on a weekly basis.

Not only is a robust economy key for overall prosperity, but a vibrant job market also directly affects a lot of firms. Two such firms are Paychex, Inc. (NASDAQ:PAYX) and Robert Half Inc. (NYSE:RHI). Paychex works with firms to manage their human resource needs, while Robert Half is a recruitment company that enables firms to hire finance, accounting, and other professionals on a full time or contractual basis.

For Paychex, this means that its shares can take performance cues from the labor market. For instance, the stock fell by 3.4% in April after the earnings report for the firm’s February quarter saw it post $1.44 billion in revenue to miss analyst estimates of $1.46 billion. However, just two days later the shares soared by nearly 2% after the March job report saw the economy add 303,000 jobs. Ensemble Capital Management stated the following regarding Paychex, Inc. (NASDAQ:PAYX) in its fourth quarter 2023 investor letter:

“Paychex, Inc. (NASDAQ:PAYX) (3.71% weight in the Fund): While employment growth was strong in 2023, the Fed’s efforts to moderate job growth was successful. Paychex business is driven by the number of employees on the payrolls of its small to medium size business customers. With recession worries percolating all year, the stock was flat on a year to date basis in late October just as the economic outlook began to brighten. As recession worries faded the stock rallied to gains of as much as 13% in the fourth quarter. But in the late December earnings report, the company said that core payroll services growth would be a bit weaker than investors expected. Despite this, the company slightly raised full year earnings guidance as demand for their full service solution that incorporates human resources services beyond payroll improved. The stock finished the quarter up 4.1%.”

PAYX shares returned around 40% over the last 5 years and currently trade at a forward PE ratio of nearly 24. The company also increased its revenues by around 30% over the last 4 years. This tells us that the company’s earnings and stock price increase at a similar rate as its revenues which is about 8% a year or so. The company’s in the S&P 500 Index also post similar annual returns over the long-term but they currently trade at a forward PE of 21. This indicates that PAYX shares are slightly overvalued relative to the rest of the market. While we acknowledge that an annual return of 8% is a decent return for most investors, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

The other employment related stock that we are going to discuss in this article is Robert Half (RHI). This company also struggled with a tight economy in its latest quarter. The firm’s first quarter earnings report, released in April 2024, sent shares tumbling 3.5% after it missed analyst revenue estimates of $1.49 billion by reporting $1.47 billion in the segment. It also marked a 14% drop over the year ago quarter’s $1.7 billion in revenue. CEO M. Keith Waddell blamed the performance on a cautious economy, commenting that “[c]lient and candidate caution continues to impact hiring activity and new project starts on a global basis. However, the trend toward stabilization that began in the second half of last year continued into the first quarter of this year.” RHI performed worse than PAYX over the last 5 years, both in terms of financial performance and stock performance. The stock trades at a forward PE of 20, but we don’t think RHI is a great investment either at this price.

While we acknowledge the potential of employment related companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

The 3.9% unemployment rate in February, which jumped after staying constant for three months, coupled with dropping unemployment claims (i.e. the number of people filing for benefits) is one reason the stock market has slowed down in Q2 2024. This is because both of these metrics are representative of a robust labor market, which means that if the Fed isn’t careful with the timing of its rate cut decisions, then inflation might very well surge again.

These figures for the US job market also come just a handful of years after the market faced one of its worst conditions in history in the form of the coronavirus pandemic. Apart from lockdowns, that naturally disrupted key industries such as travel and hospitality, the immediate post pandemic era also saw millions of Americans resign from their jobs as part of the Great Resignation. Nearly 15% or 50 million of the American population resigned from their jobs, after which employers ended up increasing pay to try to attract them back to the daily grind.

So, with inflation on a downward trend and the labor market remaining robust, one might be hard pressed to find concise answers for what lies in America’s economic future for the rest of this year. On this front, the Fed’s Neel Kashkari shared his thoughts with CNBC in late May when he stated:

“Most people thought that we’d be in a recession toward the end of last year—that didn’t happen. Instead we have very strong growth. U.S. consumers have remained remarkably resilient. The housing market has remained resilient. So I’m not seeing the need to hurry and do rate cuts. I think we should take our time and get it right.”

So, with these details in mind, let’s take a look at the American cities where the job market is weak.

Our Methodology

To make our list of the American cities with the lowest employment rates, we used the Labor Department’s April 2024 unemployment rates for April 2024 covering metropolitan areas and picked out the areas with the highest seasonally adjusted unemployment rates.

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25. Beaumont-Port Arthur, TX Statistical Area

April 2024 Unemployment Rate: 5.3%

Beaumont-Port Arthur is a metropolitan area in Texas. Its principal cities are Beaumont and Port Arthur, Texas. The region’s economy is primarily driven by the oil industry as sizeable giants like Exxon Mobil have a presence there.

24. McAllen-Edinburg-Mission, TX Statistical Area

April 2024 Unemployment Rate: 5.4%

McAllen-Edinburg-Mission is another Texas metro area. It is also known as Hidalgo County and is located in Texas’ Rio Grande Region. McAllen-Edinburg-Mission had a population of 870,781 in 2020, and agriculture plays a crucial role in its economy.

23. Redding, CA Metropolitan Statistical Area

April 2024 Unemployment Rate: 5.5%

Redding, California is located in the northern half of one of America’s largest states. It is one of the younger regions in the US since Redding was incorporated in 1887 after more than a century had passed since the American Revolution.

22. Atlantic City-Hammonton, NJ Metropolitan Statistical Area

April 2024 Unemployment Rate: 5.6%

Atlantic City-Hammonton is a metro area in New Jersey. Hammonton is located close to Pennsylvania’s economic hub of Philadelphia, and it forms a link with Atlantic City. Greater Atlantic City is quite famous in the US for its high unemployment rates, and the region’s economy is driven by tourism and casinos.

21. Kankakee, IL Metropolitan Statistical Area

April 2024 Unemployment Rate: 5.7%

The Kankakee metro area is also known as Kankakee County and its seat is Kankakee City. It is one of the smallest cities in America, with a population of 24,052 as of 2020. Apart from Kankakee, another major city in Kankakee County is Momence – a small city with a 3,117 population in 2020.

20. Decatur, IL Metropolitan Statistical Area

April 2024 Unemployment Rate: 5.7%

Decatur Metro area is also known as Decatur County and its seat is Decatur. Located in Illinois, Decatur has a vibrant manufacturing economy and houses giants such as Caterpillar and Mueller Co.

19. Chico, CA Metropolitan Statistical Area

April 2024 Unemployment Rate: 5.7%

The Chico California metro area is also called Butte County. The county’s seat is Oroville, and its most populous city is Chico. Chico’s economy is driven by agriculture, and it had a population of 101,475 in 2020. Oroville is a relatively smaller city, and its economy is driven by healthcare and neighboring Chico.

18. Rockford, IL Metropolitan Statistical Area

April 2024 Unemployment Rate: 5.9%

Rockford is a city in Illinois and it is the most populous city in the state after those that are part of the Chicago metropolitan area. Rockford is located on the state border, and the public education system along with healthcare are key pillars of its economy.

17. Vineland-Bridgeton, NJ Metropolitan Statistical Area

April 2024 Unemployment Rate: 6%

Vineland-Bridgeton is made of two primary cities, namely Vineland and Bridgeton. Among these, Vineland is the more populous region, as it had a population of 60,591 as of 2022. Both these regions use special economic zones to stimulate business development.

16. Kokomo, IN Metropolitan Statistical Area

April 2024 Unemployment Rate: 6.1%

The Kokomo metro area in Indiana is also called Howard County. The only city in this county is Kokomo, and this city had a population of 59,604 in 2020. Kokomo’s economy is driven primarily by manufacturing, and notable firms such as Chrysler and GM have a presence in the region.

15. Yakima, WA Metropolitan Statistical Area

April 2024 Unemployment Rate: 6.3%

The Yakima metro area, or Yakima County, is a region in Washington State. The region plays a crucial role in its state’s economy as some estimates suggest that as much as 40% of Washington’s wine production is based in Yakima.

14. Stockton-Lodi, CA Metropolitan Statistical Area

April 2024 Unemployment Rate: 6.6%

Stockton-Lodi metro area is also known as San Joaquin County. The county housed close to eight hundred thousand people in 2020, and its seat is Stockton, California. Stockton benefits from its proximity to San Francisco, one of America and California’s economic hubs.

13. Santa Cruz-Watsonville, CA Metropolitan Statistical Area

April 2024 Unemployment Rate: 6.7%

Santa Cruz-Watsonville, or Santa Cruz County, is a coastal region in California. Its seat is Santa Cruz, a Californian city that had a population of roughly 63,000 as of 2020. Like several small Californian cities, it also depends on agriculture for its economic output.

12. Modesto, CA Metropolitan Statistical Area

April 2024 Unemployment Rate: 7%

Modesto CA, also called Stanislaus County, is also located in the San Joaquin Valley. It is one of America’s largest almond producers, and the region is also one of California’s dominant wine producers. It also benefits from a proximity to San Francisco.

11. Ocean City, NJ Metropolitan Statistical Area

April 2024 Unemployment Rate: 7.7%

Ocean City is a New Jersey metropolitan area with Ocean City as its principal city. Ocean City is another small city in population terms. Data from the 2020 census shows that the region had a population of 11,229. Tourism is a key part of the city’s economy.