New Report: Economic Growth Slowing In RI
Monday, July 11, 2011
The state’s economic growth remained stagnant for a third consecutive month in May, so says University of Rhode Island economist Leonard Lardaro.
According to Lardaro’s Current Conditions Index, a monthly report card that ranks the state’s economic growth on a scale on 0 to 100 based on 12 key indications, May’s ranking was 58. The number matched the rankings for March and April, which equals the lowest performance in February of 2010.
Lardaro’s monthly breakdown factors in 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.
In May, US consumer sentiment, retail sales, private service-producing employment, total manufacturing hours, manufacturing wage,, new claims, and the unemployment rate all improved compared with 2010.
Growth May Be Plateauing
But Lardaro is warning that the economy could be slowing and possibly peaking.
“Clearly, Rhode Island’s rate of economic growth has slowed and may well be plateauing,” he said. “This becomes apparent by comparing CCI values for each month of this year with their corresponding values last year. For March, April, and May, the three months with CCI values of 58, 2011 values have fallen below their 2010 levels.”
Lardaro said some indicators have been struggling for months.
“The indicators I am referring to are the labor force, which has now declined or failed to improve for the last four months, and the number of employment service jobs, a leading labor market indicator that includes “temps,” which has now fallen for the past three months,” he said.
Still, not every indicator presents such a gloomy outlook. Lardaro said manufacturing strength has continued to improve throughout the past year.
“Total manufacturing hours increased by 2.7 percent, its twelfth improvement in the last thirteen months, while the manufacturing wage rose by an amazing 6.7 percent, in part reflecting labor skill shortages,” he said. “Retail Sales rose by 0.9 percent in May (my estimate), in spite of having risen by over 5 percent one year ago.”
A Disturbing Trend
Lardaro is warning that one positive-looking trend could be misleading: the unemployment rate. While government employment has fallen off as a result of recent budget cuts throughout the state, the unemployment rate has continued to drop over the last year. But Lardaro said that isn’t always a good thing.
“Our state’s Unemployment Rate dropped sharply again, from 11.7 percent one year ago to 10.9 percent in May,” he said. “That, however, was not necessarily good news, as our Labor Force failed to improve for the fourth consecutive month, reflecting what is becoming a disturbing trend of unemployed persons dropping out of the Labor Force, which helps to lower our jobless rate.”
Lardaro’s Bottom Line
Lardaro maintains that despite the mixed results of May’s index, the state still has a margin for error. However, he says he is concerned that any momentum could be slowing.
“In spite of all the trends currently taking place here, it is important to keep in mind that Rhode Island is in an economic recovery,” he said. “May marked the sixteenth month of this recovery, so we do have substantial cyclical momentum and a ‘margin for error.’ Unfortunately, Rhode Island is also plagued by a host of structural negatives that sap a great deal of its cyclical momentum. What is at issue here should be how rapidly our state’s recovery proceeds from here, not when or whether this recovery might end.”
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