Payrolls climbed in 33 U.S. states in May while the unemployment rate dropped in 25, showing employers are looking beyond fiscal headwinds to boost hiring.

Ohio posted the largest gain in payrolls, adding 32,100 jobs last month, followed by Texas and Michigan, the Labor Department reported today in Washington. California and West Virginia were among states showing the biggest decreases in unemployment.

Rising consumer demand has private employers adding workers even as government payrolls shrink amid federal budget cuts that began in March. The reduced government spending — known as sequestration — combined with higher taxes imposed in January, have fostered caution among businesses.

“If we didn’t have tax increases and sequestration, imagine what growth would be like,” Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania, said before the report. “We’re getting enough job growth to get the unemployment rate down, it’s just not going to come down quickly.”

At the state level, employment rose by 19,500 in Texas, last month, the second-biggest gain of any state in today’s report. Michigan followed with an 18,100 increase.

Pennsylvania and South Carolina showed the biggest decreases in payrolls, according to the report.

The unemployment rate showed a statistically significant decline in four states. It dropped by 0.4 percentage point in California and West Virginia, and 0.2 percentage point in Hawaii and New York. The rate rose by 0.3 percentage point in Tennessee, the biggest gainer.

Highest Unemployment

Nevada had the highest unemployment rate, at 9.5 percent, falling from 9.6 percent in April. Illinois and Mississippi were second, at 9.1 percent. North Dakota’s jobless rate was the lowest in the nation at 3.2 percent.

Nationally, payrolls rose 175,000 in May, up from 149,000 in April, and the labor force expanded as more people took advantage of improved job prospects to look for work. The number of people joining the workforce—420,000—exceeded the 319,000 gain in employment, pushing the unemployment rate to 7.6 percent from 7.5 percent in May, the Labor Department reported earlier this month.

State and local employment data are derived independently from national statistics, which are usually released on the first Friday of every month. State figures are subject to larger errors because they are derived from smaller samples, thus making the national data more reliable, according to the U.S. Bureau of Labor Statistics.

(Editors: Carlos Torres, Mark Rohner)