URI Economist: RI Economy Close to Stalling

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Monday, October 10, 2011

Dan McGowan, GoLocalProv News Editor

Rhode Island’s economy plunged to its lowest value since January 2010 in University of Rhode Island economist Leonard Lardaro’s latest “Current Conditions Index (CCI),” but Lardaro says that doesn’t mean the state has entered another recession.

Each month, the CCI offers a breakdown of the state’s economy based on 12 vital indicators. Lardaro valued the month of August at a 42 (out of 100), which is the lowest ranking in nearly two years and also marks the sixth consecutive month the economy has failed to improve compared to last year. Lardaro said August’s CCI score proves the state’s economy has slowed.

“Taken together, these recent CCI values reaffirm what I have been saying for a while now: Rhode Island’s economy has definitely slowed over the past several months,” he said. “In fact, the set of 2011 CCI values up to this point are trending lower, as we are have witnessed lower highs and lower lows. However, this does not indicate that Rhode Island has entered a recession. It is never advisable to make too much of a single month’s data. Were Rhode Island in recession, we would have observed six or more consecutive contraction readings.”

Only Five Indicators Improved

But that doesn’t mean a recession is out of the question. Lardaro has maintained that Rhode Island has a fifty-fifty chance of falling into a recession during the current fiscal year. He noted that of the indicators he scrutinizes each month, only five showed improvements in August.

Lardaro’s monthly analysis factors 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.

According to Lardaro, private service-producing employment, total manufacturing hours, manufacturing wage, benefit exhaustions and the unemployment rate all improved. Lardaro called some of these findings “bizarre.”

“The Manufacturing Wage surged by 14.9 percent in August, following a 12.7 percent rise last month” he said.”I find such parabolic changes very hard to believe. Our state’s Unemployment Rate fell to 10.6 percent in August, in spite of a monthly decline of over 6,000 in payroll employment and as both resident employment and our state’s Labor Force continued to fall. I suggest that you take this jobless change with a major “grain of salt.” Among the other improving indicators, Private Service- Producing Employment, while still growing, grew more slowly, at 1.4 percent this month versus 2.4 percent in July. Sadly, the benefits of even this change were offset by yet another sharp decline in Government Employment (-2.6%).”

Economy Close To Stalling

Lardaro expressed concern that new claims increased by over 13 percent, a sign layoffs in the state may be on the rise. He said the state’s economic recovery is still continuing, but the rate is slowing down.

"While this recovery is apparently continuing, the rate of improvement in overall economic activity here continues to moderate," Lardaro said. "As a result, Rhode Island’s economy is now perilously close to stall speed. August was the eighteenth month of this recovery, reflecting some momentum that can help us in the future.”

Lardaro warned that the state is dangerously close to entirely following the trends of the national economy.

“However, if that momentum slips farther away, then absent the structural changes Rhode Island should have made over the past few years, we will be almost entirely at the mercy of national and global trends moving forward,” he said.
 

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