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WASHINGTON, June 21 (Reuters) - Automatic federal spending cuts known as sequestration have not spawned unemployment in Virginia, Maryland and Washington, D.C., as many predicted, with data released on Friday showing that the three places gained jobs as their unemployment rates dropped over the last year.
According to the Labor Department, Virginia's unemployment rate was 5.3 percent in May, compared to 5.9 in May 2012. The drop was also seen for the District of Columbia, where the rate was 8.5 percent in May, compared to 9.1 percent the year before. For Maryland, the rate was 6.7 percent, down slightly down from 6.8 percent in May 2012.
Moreover, all three places gained jobs from May 2012.
Because it relies heavily on the federal government for jobs and money, the region had feared its economy would grind to a halt after sequestration began on March 1. A widely cited study from the George Mason University Center for Regional Analysis in Virginia estimated the state would lose about 154,000 jobs, Maryland more than 84,000 jobs, and the District around 92,500.
"These economies are showing, I would say, unexpected strength," the author of the study, Stephen Fuller, told Reuters. "Everybody was predisposed to thinking that decreases in federal spending and the sequester effects would have a visible impact on the economy. And it hasn't shown up. It's quite remarkable."
From May 2012, Washington, D.C. gained 3,000 jobs, Maryland 35,600 jobs and Virginia 48,200, the federal data showed. According to the Virginia Employment Commission, the state saw the strongest year-over-year increase in payrolls since April 2012.
"It shows there's a lot more to this economy. At the state level too, the economy is more complex than we tend to think about," Fuller said, adding the federal government had driven job growth since the 1990s but now other sectors are flourishing.
More than half the 4,600 jobs Maryland gained since April were in the private sector, 2,800 said the state's Labor Secretary Leonard Howie. That was the highest private sector growth in five years, he added.
But, Fuller warned, the regional economy would have likely been stronger without sequestration.
Federal and contractor jobs have typically been the largest portions of the capital area's labor market, and they have also paid higher salaries on average. The job sectors that are growing, such as teaching or construction, may have lower incomes. Meanwhile, federal furloughs and salary cuts could slow down consumer spending in the area.
The jobless rates in the states bordering the seat of federal power did not improve from April, as well. The unemployment rate rose slightly in Maryland from 6.5 percent and in Virginia from 5.3 percent. In the nation's capital, it remained the same as the previous month.
The Labor Department reported that the jobless rates in 25 states dropped in May from April, rose in 17 and were unchanged in eight. From May 2012, rates dropped in 41 states total, alongside D.C., rose in four and were unchanged in five.
Nevada once again held the highest unemployment rate in the nation, 9.5 percent.
Since the end of the 2007-09 recession, California has frequently held the second-highest spot. But in May, the Golden State's rate plummeted to 8.6 percent from 9 percent in April and 10.7 percent a year before, as the state recovery ramps up.
Illinois and Mississippi now hold the second highest unemployment rates in the country, both at 9.1 percent.
May's rate in Illinois was lower than April's 9.3 percent, but still above 8.9 percent in May 2012. The state added 11,800 private sector jobs in May from April and 54,000 since May 2012, according to its employment department.
This year "illustrates the volatile nature of the unemployment rate," said the department's director, Jay Rowell, who noted in a statement that the rate rose in January and February, was flat in March, and then dropped in April and May.
"This trend likely will continue as national and global events push consumer confidence," he said.
North Dakota again had the lowest unemployment rate in the country, 3.2 percent.
According to the Labor Department, payrolls grew in 33 states and D.C. altogether, and decreased in 17 states from April. Ohio gained the most jobs, 32,100, and Pennsylvania lost the most 9,200. From May 2012, 48 states and D.C. added jobs, while Alaska and Wyoming lost them.