Jobs recovery will be sluggish

NEW YORK (CNNMoney.com) -- The annual unemployment rate rose across all states and the nation's capital last year, with Michigan and Nevada posting the biggest jumps, according to a government report released Wednesday.

The average national unemployment rate spiked 3.5 percentage points to 9.3% in 2009, the biggest year-over-year jump since the Labor Department first began recording the data.

"The deterioration of the labor market was surprisingly severe and the worst we've seen in a long while," said John Lonski, chief economist at Moody's Investors Service.

He added that the real estate crisis and the credit crunch have triggered the most severe recession since the Great Depression.

The 2009 annual jobless rate in Michigan, which was pounded by the collapse of the auto industry, spiked 5.3 percentage points. It was also the state with the highest unemployment rate for the fourth consecutive year, at 13.6%.

Nevada's annual unemployment rate followed Michigan's with a 5.1-point rise to 11.8%. Jobless rates in seven additional states climbed by at least four percentage points.

Thirty states had average unemployment rates that were significantly better than the nation's level. North Dakota fared the best, with the smallest increase of 1.1 percentage points and the lowest rate lowest rate at 4.3%, and Nebraska followed close behind.

The proportion of those employed to those in the total working-age population also fell across the country in 2009. Four states, including Michigan, and Washington, D.C., posted drops in the ratio by at least four percentage points.

For the 34th year in a row, West Virginia reported the lowest employment-population ratio at 50.5%.

While the labor market's beating might be over, the recovery will be slow and painful.

In fact, the nation's average unemployment rate will likely tick higher in 2010, to match 1982's peak at 9.7%, but is unlikely to surpass that level, according to the Lonski.

Weekly jobless claims have been moving higher since the middle of January, suggesting employers are laying people off.

But even as the labor market stabilizes later this year according to economists' expectations, the unemployment rate will continue to climb as the underemployed return to the the labor market seeking jobs.

"We're going to see a misleading upward bias to the degree that the signs of an improving economy will lure people back into the job search. But if they don't get jobs, they'll begin to be classified as being unemployed," Lonski said. "It's the reverse of the discouraged worker effect."