Double-Dip Recession Would Devastate Rhode Island
Saturday, May 12, 2012
A double-recession could deliver the fatal blow to a state already struggling with the second highest unemployment in the country, Rhode Island top economists say.
The threat of another recession heightened this week when the Rhode Island Current Economic Indicator (CEI) found that slow rates in economic growth have had the state’s economy stuck in neutral for over a year.
According to a briefing released this week by Bryant University’s Center for Global and Regional Economic Studies and the Rhode Island Public Expenditure Council (RIPEC), the CEI for the first quarter of 2012 increased just one percent. Now some economists are explaining just how much a double-dip recession would hurt the Ocean State.
“A double-dip recession for Rhode Island will result in a further drag on the state's economy,” said Dr. Ed Mazze, Distinguished University Professor of Business Administration at the University of Rhode Island. “You can expect unemployment in the range of 12 to 13 percent, more underemployment and people giving up looking for a job.”
Mazze also predicted business and consumer confidence continue to climb and said “low confidence means purchases are postponed.” That in turn could hurt tax revenue at the state and local, which may cause difficulty for city and towns who want to borrow funds.
“Greater reductions in government spending at the city and town level will be needed or bankruptcy becomes an option,” Mazze said. “When adding these consequences together, Rhode Island may not return to a post-recession economy until 2014 or 2015. Therefore, any efforts for creating jobs and attracting and retaining companies becomes more difficult. And, at the local level, higher property taxes, higher income taxes and lower values of homes could become realities.”
State Must Stimulate Economic Activity
The CEI, developed by Bryant University’s Center for Global and Regional Economic Studies, combines several key gauges of economic activity in a single statistic that measures the overall current economic conditions in Rhode Island. It is calibrated to grow at the rate of the Real Gross State Product and therefore can be interpreted as the underlying growth rate of the state economy. The CEI is calculated using the most current available data for the state.
According to the briefing, the state may have little hope in turning around the economy any time soon.
Figures from the report suggest that in order to avert a return to recession or prolonged economic stagnation, state and local governments and businesses must engage in coordinated efforts to stimulate economy activity and promote economic growth in Rhode Island.
“[A recession] would deepen the job market predicaments marked by extremely high rates of unemployment and no job creation since 2009,” said Edinaldo Tebaldi, assistant professor of economics at Bryant University. “And would also add more stress to the social services network and reduce government revenues. The Rhode Island economy badly needs growth to avoid this scenario.”
The report found that:
Employment in leisure and hospitality services decreased 2.5 percent, adding to the poor performance of leisure and hospitality since the third quarter of 2011;
The unexpected job creation that took place in construction in the fourth quarter of 2011 was eliminated. In fact, employment in construction decreased 24.2 percent (annualized rate) in the first quarter of 2012 compared to an increase of 23 percent in the fourth quarter of 2011;
- The performance of the professional and business services and trade, transportation and utilities services industries improved slightly.
While the nation economy continues to expand, Rhode Island’s economy has grown significantly slower than the rest of the region and the country. The U.S. Gross Domestic Product increased at an annualized rate of 2.2 percent in the first quarter of 2012, and the New England economy expanded during the same quarter at an annualized rate of 3.3 percent.
“The indicator signifies that Rhode Island’s economy is stagnating, and that growth is predominantly the result of external factors, which are also showing signs of slowing,” said John Simmons, executive director of RIPEC. “While there are some positive signs, the question is whether the economic conditions in the state will continue to improve, and at what rate.”