Where Is RI’s Economy Headed?
Tuesday, August 31, 2010
Rhode Island’s economy is at a fork in the road—it either could climb out of the recession or slip back into it, according to two local economists who spoke with GoLocalProv.
In July, the state economy showed signs of expansion for the second month in a row, based on preliminary data, according to Leonard Lardaro, a University of Rhode Island economist and author of the Current Conditions Index, a monthly check on the economic pulse of the Ocean State. His Current Conditions Index for June showed the state economy at 58 on a scale of 0 to 100, with numbers above 50 reflecting recovery and those below showing recession.
He said it was too early to say whether Rhode Island is in a recovery. “It doesn’t mean happy days are here,” Lardaro said. “It could mean the normal stages of an early recovery or just continuing with the late stages of a recession.”
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTAnd even if the Ocean State is about to climb out of the recession, the slowing national economy could pull it back down. “It may end up being that we get a recovery denied because of the national economy,” Lardaro said.
Business Professor: Economy ‘Stuck in Neutral’
Economist Ed Mazze, a URI business professor, agreed that the state economy is in a precarious position. “I think right now the economy is stalled in neutral,” Mazze said. He said the economy could move either forwards or backwards.
One obstacle to moving forwards is low consumer confidence, which means that consumers are not buying all the things they could be buying—in turn, meaning that businesses are not hiring, expanding, or buying new equipment, Mazze said. Low consumer confidence, combined with double-digit unemployment and under-employment, could drive the economy into a double-dip recession, Mazze warned.
He believes the only way Rhode Island will recover is if the economies of Massachusetts and Connecticut pick up steam, pulling Rhode Island along with them.
RI Too Dependent On Manufacturing
There were, however, two notable bright spots in the data for July 2010, according to Lardaro.
The number of hours working at manufacturing jobs each week went up by two hours, an increase of 6 percent. And there were 60 building permits pulled for single homes across the state. In contrast, during the worst months of the recession there were only 30 permits issued, according Lardaro.
The downside is that manufacturing and construction won't lead Rhode Island out of the recession, Lardaro said, noting that the last year employment in manufacturing increased was in 1984. He said the state economy is weak because of its dependency on manufacturing and the absence of growth in technology-related industries.
State Economic Policies Partially to Blame
Both Mazze and Lardaro faulted state leaders for not doing enough—or the right things—to help Rhode Island recover. Lardaro said the General Assembly acted too late in reforming the state income tax code this year—waiting three years to implement recommendations made by a tax commission he sat on.
Mazze criticized the state for looking for silver-bullet solutions, like the wind farm off Block Island proposed by Deepwater Wind or the $75 million loan guarantee the Rhode Island Economic Development Corporation extended to Curt Schilling’s video gaming company, 38 Studios, to entice it to come to Rhode Island.
“We always look at the tip of the iceberg,” Mazze said. “‘Jobs’ seems to be the tip of the iceberg. Nobody’s talking about what we need to do to retain jobs.”
Mazze: Candidates Are ‘Naïve’ on Job Creation
Mazze wasn’t too enamored with the current crop of candidates running for state and federal office either. He said he has heard some good ideas on the campaign trail but no good plans for implementing those ideas. “I think all the candidates are naïve talking about creating jobs,” Mazze said. “The plans being presented by people that have no authority to implement them nor do they have funds to support them.”
“The candidates running for state office are using the term ‘jobs’ like the American Flag,” Mazze added. “The more you wave the flag, the more you believe.”
He said there was no doubt that the state economy will remain stuck in neutral at least until November. Conventional wisdom says that’s a bad environment for incumbents—but Mazze doesn't see it that way.
“I think at the end of the day most voters are generally comfortable with what they know, with the people with experience,” Mazze said. “You’re going to hear a lot of huffing and puffing. When things are over I think most of the incumbents are going to return.”
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