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Lardaro Report: RI Economic Performance is Moving Forward, Slowly

Monday, February 10, 2014


URI Economist, Leonard Lardaro

Rhode Island showed improvement in nearly all of the economic indicators for December's Current Conditions Index, a measure of the state's economic performance released today by URI Economist Leonard Lardaro.

After the index fell to 67 in November, December's conditions improved, bouncing back to match October's level of 75. However, the fact that the CCI has failed to reach its previous-year value for the fifth consecutive month is a concern.

Lardaro's Current Conditions Index:

As the fourth quarter and 2013 came to an end, Rhode Island’s economic performance continued as it had for a while - we are moving forward, albeit at a not very encouraging speed. The news overall continued to be mixed: the good news was that the Current Conditions Index for December rose slightly to 75 from its November value of 67. And, within December’s performance, there were some positive results, mainly that almost all of the CCI’s leading economic indicators improved. That bodes well as we move into 2014. The bad news pertains to the continuation of a disturbing pattern: for a fifth consecutive month, and the sixth time in seven months, the CCI failed to exceed its year-earlier value. Hopefully, since the CCI values in early 2013 were not as strong as they had been in late 2012, we will soon find ourselves exceeding year-earlier values again in the first part of 2014. That is a very real possibility if the US economy continues to strengthen. We’ll just have to keep our fingers crossed. Once we begin to exceed prior-year values this will be the signal that the recovery is once again becoming more broadly based and that our momentum is accelerating. As I noted last month, the ultimate test of how robust Rhode Island’s recovery proves to be will be defined by our ability to accelerate from current and past rates of growth. We can only hope that our state’s continuing failure to meaningfully redefine itself for the information age (other than renaming the EDC) won’t pose too many obstacles.

By the numbers


For December, four of the CCI’s five leading indicators improved. The other, Single-Unit Permits, barely failed to improve, declining 1.4 percent from a year ago. While this was only its third non-improvement in over a year, this month’s result may well be more of a reflection of December’s weather than of any underlying economic weakness in our state’s housing sector.

US Consumer Sentiment rose sharply (+12.9%) in December following three consecutive months of declines. It has remained in an uptrend that we can expect to continue as long as the stock market continues to improve. Employment Service Jobs, which includes temporary employment, a prerequisite to overall employment growth, rose by 2.0 percent in December following a decline last month. While it remains in an uptrend, it appears quite likely that its values are leveling off around 9,000, assuming that re-benchmarking next month doesn’t change this pattern. Should layoffs begin to rise, this will pose a number of problems to our economic momentum as we move into 2014.

All of the remaining leading indicators improved in December. New Claims for Unemployment Insurance, the timeliest measure of layoffs, improved significantly in December, falling by 21.8 percent, its second consecutive double-digit decline. While this indicator is not yet in a well-defined downtrend, the most recent four months indicate that this may be changing. The final leading indicator, Total Manufacturing Hours, which measures strength in our manufacturing sector, rose by a very healthy 3.5 percent in December, driven mainly by a large increase in the length of the workweek. This indicator has now improved for eleven of the last thirteen months. Combined with the recent behavior of Single-Unit Permits, it is clear that Rhode Island’s goods-producing sector is far from dead.

Retail Sales have remained strong on a year-over-year basis, in spite of a slowing in their rate of growth of late. On a monthly basis, however, Retail Sales have generally been declining since September. Private Service-Producing Employment growth, which had recently moved above a one percent rate of growth, slipped below that rate in December, rising by only 0.8 percent. When the re-benchmarked data are released next month, we will likely see notable revisions in this indicator. Our state’s Labor Force declined yet again (for the ninth consecutive time). Yet in spite of this, Rhode Island managed to move into sole possession of the #1 slot, not for a noteworthy positive area, but for ourUnemployment Rate. Rhode Island’s jobless rate rose slightly over the month while other states saw declining rates. Finally, Government Employment edged down again (by 0.3%).

The fourth quarter ended on a far less positive note than what we experienced one year ago. At present, Rhode Island’s economy has moved beyond an inflection point in terms of its rate of growth, as our state’s recovery has now become somewhat less broadly based. Evidence of this is provided by the fact that the CCI has now failed to exceed its year-earlier value for five consecutive months, hardly a very happy way to end the year! In spite of this, pockets of positive momentum exist, perhaps more than one might think, but not as much as we should have been experiencing had our elected officials done the hard work of meaningfully reinventing our state’s economy.


Related Slideshow: 7 Strategies for Rhode Island Economic Development in 2014

What will it take to move the Rhode Island economy forward in 2014?  GoLocal talked with elected officials, candidates, and leaders for their economic development plans in the coming year. 

Below are key elements of the economic priorities for Governor Lincoln Chafee, Speaker of the House Gordon Fox, Senate President M. Teresa Paiva-Weed, House Minority Leader Brian Newberry, gubernatorial hopefuls General Treasurer Gina Raimondo and Ken Block, and RI Center for Freedom and Prosperity's Mike Stenhouse.  

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Governor Lincoln Chafee

"My goal is to have the state continue to focus on the fundamentals.  We will invest in education, workforce development and infrastructure , and provide aid to  cities and towns to lessen the burden on property taxpayers.  I’m confident that these investments and our focus on the basics will allow Rhode Island to exceed Moody’s predictions.”
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Speaker Gordon Fox

"Among the many pieces of legislation the House will address will be issues of higher education affordability, expanding apprenticeship opportunities, and offering help to our manufacturers.  We will also look closely at our tax structure to make sure we are competitive with our neighboring states, including the corporate tax and the estate tax, and I will carefully review the recommendations of the commission studying our sales tax.”

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Senate Pres. Paiva-Weed

Greg Pare, spokesperson for the Senate President, said that the Senate is planning to issue recommendations soon on workforce development initiatives to address the skills gap among Rhode Island job seekers.

"An example of a proposal anticipated in that report is the elimination of state’s Indirect Cost Recovery on the Job Development Fund, which is about $1.2 million this year. Those funds would be directed towards job training and skills development programs to provide immediate impact and help workers gain the skills necessary to succeed in today’s economy."

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Gen. Treasurer Raimondo

"To grow our economy, we need to make Rhode Island a leader in manufacturing again.  Great things can happen at the intersection of government, higher education, and the private sector.  Rhode Island is lucky to have thriving institutions in each of these three sectors, and we need to foster collaboration among them to find solutions to our challenges, and spark our economy.  

By promoting partnerships in high-growth areas, [Rhode Island Innovation Institute] will help grow our manufacturing base, and create new, high-quality jobs."  

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Ken Block

"First, we need to fix Rhode Island’s broken Unemployment Insurance program. The state’s Unemployment Insurance tax, paid by employers, is ranked worst in the country by the Tax Foundation. It is one of the factors that makes Rhode Island an uncompetitive place to do business. Also, it is inherently unfair that a large group of businesses are effectively subsidizing the payrolls of a small group of businesses who misuse the system. There is a simple change to state law that can fix this problem."

"Rhode Island’s temporary disability tax (TDI) is broken, and places an unnecessarily high tax burden on Rhode Islanders. This tax, paid for by employees, will be reduced by changing the way we manage the program. As Governor, I will substantially reduce the cost of purchasing this insurance by requiring that Rhode Island’s program adhere to national norms."

"To best encourage new job creation, I propose the following tax incentive: exempt from future capital gains taxes any new investments in Rhode Island-based businesses. This change would create a powerful incentive for investors who are deciding where to locate a new business, or where they relocate an existing one. This proposal has the potential change the economic playing field for Rhode Island."

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Minority Leader Newberry

“It would be overly ambitious to set being #1 as a goal right now, but we think 25, the middle of the pack, is a reasonable goal to set, one we think we should pursue, and one we can achieve,” said Newberry. "One of the initiatives is a requirement that every bill receive a fiscal evaluation before it can be heard by committee, better insuring that legislators know the real cost of the legislation they are acting on."

"Another proposal would exempt social security income from RI state income tax, making Rhode Island more tax-friendly for our seniors and keeping them here rather than migrating to more tax-friendly states."

“Strong action is way overdue here. Nearly 60% of Rhode Islanders now believe that the state is headed in the wrong direction. We think they’re right, and our central goal is to get it turned around."

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Mike Stenhouse

"As part of the Center's 2014 Prosperity Agenda we recommended that the state:
Repeal or rollback of the state’s regressive sales tax; or the requirement that families have no choice on what schools best educate their children; or punitive estate taxes that drive wealthy people to other states; or restrictions on out-of-state companies to sell health insurance in RI; or the minimum franchise tax, which stifles entrepreneurship; or corporate welfare, to level the playing field; or even renewable energy mandates that drive up costs for every family and business …"

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