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URI Expert: State Economy is “Stuck in Neutral”

Monday, December 12, 2011


While Rhode Island’s economy might still be “dead in the water,” a favorable tide capable of helping the state gain future momentum might be emerging, according to URI Economist Dr. Leonard Lardaro.

The forecast comes in the October edition of the professor’s Current Conditions Index (CCI), a monthly report card that ranks the state’s economic growth on a scale on 0 to 100 based on 12 key indicators. October’s score was 50, which mirrored the score from September. It was the the eighth consecutive month for which the CCI failed to beat its year-earlier value.

Lardaro’s monthly breakdown 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.

Possible Momentum

The fourth quarter of the year began with six of the twelve CCI indicators improving, including retail sales, employment services jobs, private service-producing employment, manufacturing wage, benefit exhaustions and the unemployment rate.

Lardaro said the number of improved indicators “point to the likelihood that our ultimate breakout from the neutral range may well be to the upside.”

Lardaro continued: “So, in spite of a bland overall performance, October’s data reveal possibly building momentum. Key to this is the performance of three variables. Retail Sales rose by 4.7 percent in October, its fourth improvement in the last five months, in spite of the continuing deterioration in US Consumer Sentiment, which fell by 9.9 percent. Sustained improvement in this indicator will be a clear signal that Rhode Island’s economy is improving.”

Employment Services Jobs saw its first improvement since February and at the same time, the drop in the unemployment rate combined with the Labor Force rising for the month is a positive sign for the economy, according to Lardaro.

Still, there were some disappointments. Total Manufacturing Hours, which has increased significantly during the economic recovery, declined for the first time in almost a year and a half while Single-Unit Permits dropped by 23.1 percent in October. New Claims, which reflects the number of layoffs, which rose by 3.2 percent, its fourth consecutive failure to improve.

Stuck In Neutral

Overall, the economy has a better outlook than the previous month, when Lardaro concluded that the state was more than 50 percent likely to fall into a recession during the current fiscal year. Lardaro referred to the economy as “dead in the water.”

At the time, Lardaro said he believed the economy still hasn’t 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.”

Now Lardaro says the most recent data show things could be taking a turn in the right direction.

“While Rhode Island’s economy remains stuck in neutral overall, October’s data contain some basis for believing that things might begin to improve in the future. The critical indicator to watch is Retail Sales. Overall, though, we must abide by the most basic rule of data analysis: never make too much out of a single month’s data,” Lardaro said.


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