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URI Expert: RI Economy is Dead in the Water

Monday, November 14, 2011


The state is now more than 50 percent likely to fall into a recession during the current fiscal year after economic activity remained flat for the entire third quarter of 2011, according to University of Rhode Island economist Dr. Leonard Lardaro.

“At this point, I think it is safe to conclude that Rhode Island is no longer near stall speed,” Lardaro said. “The conclusion I reached in last month’s report: we are now pretty much ‘dead in the water.’”

Every month, Lardaro releases his “Current Conditions Index (CCI),” which analyzes the state’s economy based on 12 vital indicators. He valued the month of September at a 50 (out of 100), marking the seventh consecutive month the economy has failed to improve compared with last year. The score is the second-lowest rating since January 2010; only August had a poorer showing.

Not Yet in a Period of Contraction

Lardaro’s monthly analysis takes into account 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.

Half of those indicators actually improved compared to last month, including retail sales, private service-producing employment, total manufacturing hours, manufacturing wage, benefit exhaustions and the unemployment rate, but sharp declines in U.S. consumer sentiment and single-unit permits as well as a huge jump in new claims kept the economy from taking a true step forward.

Still, despite in upgrade in his recession prediction and the appearance of a stalling economy, Lardaro said the state has not yet hit rock bottom.

“In spite of this lack of positive momentum, I remain unconvinced that Rhode Island’s economy has actually entered a period of contraction,” Lardaro said. “In other words, as bad as the data are, I do not believe that Rhode Island has fallen into a recession at the present time.”

Another Weak Performance

Lardaro said September’s data reveal “yet another very weak economic performance” He said the state’s Unemployment Rate should be viewed with skepticism because while fell to 10.5 percent in September, declines in both payroll and resident employment suggest the reason was a decline in the state’s Labor Force.

Because new claims rose by 29.7 percent, the state may have well have moved into a period of rising layoffs, which Lardaro said could seriously undermine our future economic momentum. He said new home construction (Single-Unit Permits) declined after two months of increases and Employment Service Jobs dropped by 2.1 percent.

All of it means Rhode Island has little margin for error within the economy and that a recovery that is now heading into month 20 has reached its breaking point.

“While I still believe that Rhode Island is in a recovery, the rate of improvement in overall economic activity during the third quarter moderated to the point of a virtual standstill,” Lardaro said. “September marked the nineteenth month of this recovery, reflecting that a fair amount of healing has occurred. But Rhode Island remains saddled with a long list of structural negatives that will only mitigate any future momentum that emerges. Rhode Island’s margin for economic error has now effectively disappeared.”


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