URI Expert: Too Early to Tell if Economy is Improving
Monday, January 16, 2012
The state’s economy reached its highest performance level in nearly a year in November, but it’s still too early to tell if the improvements will be sustainable in the long run, according to University of Rhode Island economist Leonard Lardaro.
Each month, Lardaro’s Current Conditions Index (CCI) offers a breakdown of the state’s economy based on 12 vital indicators. Lardaro valued the month of second-to-last month of the year at a 67 (out of 100), which was the highest ranking since February and marked the first time in four months that economy had gone above “neutral” (50). Lardaro said November’s CCI score “may be a signal that Rhode Island’s economy has finally moved to a sustainable higher level of economic activity,” but he hesitant to offer a definitive prediction.
“Rhode Island’s economy finally showed a spark of life in November, as it was able to break out of the neutral range it had been stuck in since May,” he said. “The Current Conditions Index rose to 67 in November, its highest value since February, as eight of twelve indicators improved.”
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTManufacturing Wage Surges
Lardaro’s monthly analysis factors government employment, US consumer sentiment, single-unit housing permits, retail sales, employment services jobs, private service-producing employment, total manufacturing hours, manufacturing wage, labor force, benefit exhaustions, new claims, and the unemployment rate.
While the improvement may be seen as a positive sign for a state still struggling with an unemployment rate of 10.5 percent, Lardaro said the November score is still well-behind what it was one year ago.
The key factors were the manufacturing wage, which surged by 17 percent and the number of benefit exhaustions dropped by more than 27 percent. Retail sales also increased by 1.8 percent, as did single-unit permits, which reflects new home construction.
“As I have stated numerous times over the years, in tracking the overall performance of Rhode Island’s economy, there are always groups of positive and negative forces interacting,” Lardaro said. “Whichever of these dominates ultimately determines the overall direction our state’s economy takes. Suffice it to say that there was a great deal of such interaction in November.”
Other Areas Struggle
Still, not all of the indicators were able to improve significantly and others continued to trend down. The most notable area was labor force, which decreased by 2.7 percent and failed to improve against the prior year in virtually every month of 2011. But Lardaro noted that improvements have been made month-by-month.
“One other indicator, the Labor Force, has continued to perform very badly on a yearly basis, as it has now failed to improve every month since February,” he said. “But it too has begun to improve on a monthly basis, and along with this monthly improvement has come higher levels of resident employment, a very positive sign, and a falling unemployment rate.”
Lardaro also noted that manufacturing hours, which consistently improved over the 18 months, barely increased (0.6%), new claims (which indicated layoffs) rose for the fifth consecutive month.
Wait and See
Lardaro said he’s unsure of what November indicators mean for the economy moving forward. He said some elements suggest the state could be taking a step in the right direction while others suggest the economy might not be improving.
“The pressing question for now is whether Rhode Island’s economy has broken out of the neutral range it has been stuck in for many months,” he said. “Several elements within the November data that suggest that this might be the case while others imply that sustained improvement might not materialize. All of this is complicated by likelihood of revisions to the existing labor market data, as data for the final months of the year are those most likely to be changed when rebenchmarking occurs. We’ll just have to wait and see.”
