Lardaro Report: RI’s Economic Recovery Hampered by Winter Weather

Monday, April 14, 2014


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In his most recent report, URI Economist Len Lardaro cited rugged winter weather as a contributing factor in Rhode Island's failure to show economic improvement in February.

However, even under improved weather conditions, Lardaro states that the Current Conditions Index would have failed to improve relative to its year-earlier value for a seventh consecutive month and eighth time in the last nine months.

Lardaro's Current Conditions Index:

The rugged winter weather that continued into February clearly took its toll on Rhode Island’s overall economic performance, although there were still a number of areas where Rhode Island did well. The most obvious tragedy of the weather was new home construction, which was almost non existent in February. Yet at the same time, both Retail Sales and US Consumer Sentiment turned in very strong performances. The Current Conditions Index for February was 58, a decline from its (downwardly revised) value in January of 67, and below the February 2013 value, which was also 67. However, I have scored the CCI for February with an asterisk — guilty with an explanation: were it not for the recorded plunge in Single-Unit Permits (to 26 units for the entire state), the value of the CCI would likely have been 67, matching its values for last month and one year ago.

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Yet even if that change had occurred, the CCI still would have failed to improve relative to its year-earlier value for a seventh consecutive month and eighth time in the last nine months. Clearly, these “misses” are not all, nor mostly, attributable to the weather over the past several months, so some slowing of our state’s overall cyclical momentum is continuing. The upside to this, if there is one, is that payroll employment has been rising substantially more than we were led to believe with the data prior to the most recent rebenchmarking, and we just received word that December’s employment number will be revised even higher. I guess this is Rhode Island’s version of life in the fast lane!

For February, two of the CCI’s five leading indicators improved, while two failed to improve, and the fifth was highly weather distorted. Looking first at those that failed to improve, Employment Service Jobs, which includes temporary employment and is a prerequisite to employment growth, fell by 1.3 percent in February, its third consecutive decline. However, based on the recent contradictory rebenchmarking changes to this indicator, the only thing I feel confident in concluding is that this indicator either increased, decreased, or remained unchanged in February. The other leading indicator that failed to improve, New Claims for Unemployment Insurance, is the timeliest measure of layoffs. For February, it rose by 11.5 percent compared to a year ago, its second failure to improve since last August. The downtrend in this indictor since July of 2013 may well have ended, which would be particularly bad news for our state. Finally, Single-Unit Permits, which was highly distorted by the weather, fell by 57.1 percent relative to a year ago. In spite of this, Rhode Island is continuing to move beyond its cyclical trough in new home construction.

US Consumer Sentiment rose by 5.2 percent in February, its third increase following three consecutive months of declines. The final leading indicator, Total Manufacturing Hours, which measures strength in our manufacturing sector, resumed strong growth I February (+3.0%), boosted by increases in both the workweek and employment.

Retail Sales turned in a very strong performance in February, rising by 5.3 percent relative to a year ago. Keep in mind this indicator excludes clothing sales, which likely grew substantially in light of February’s very cold weather. Private Service-Producing Employment, which was revised higher in the recent rebenchmarking, is displaying fairly strong growth. For February, it rose by 1.8 percent relative to last February. The performance of our state’s Labor Force continued as it has for a while now - rates of decline continue to exceed one percent. February was its tenth consecutive decrease. Even with these declines, Rhode Island once again claimed the #1 jobless slot in February, as our Unemployment Rate was 9%. Let me confess that I am skeptical of these revised unemployment numbers in light of the improving performance of payroll employment. More on this next month. Finally, Government Employment was unchanged in February at just under 60,000.

The present recovery continues to be less broadly based than it was a year ago, based on the fact that the CCI has now failed to exceed its year-earlier value for seven consecutive months. There are areas of strength, however, and payroll employment is growing faster than we had thought (although we remain 4.6% below our prior peak). A number of persons say we need to make drastic changes now, then propose ill-conceived solutions presupposing sales tax changes as “the solution.” Rhode Island needs intelligent and well thought out investment-oriented solutions that are based on thorough due diligence. We need to stop “flying blind,” that’s what go us here!


Related Slideshow: 7 Strategies for Rhode Island Economic Development in 2014

What will it take to move the Rhode Island economy forward in 2014?  GoLocal talked with elected officials, candidates, and leaders for their economic development plans in the coming year. 

Below are key elements of the economic priorities for Governor Lincoln Chafee, Speaker of the House Gordon Fox, Senate President M. Teresa Paiva-Weed, House Minority Leader Brian Newberry, gubernatorial hopefuls General Treasurer Gina Raimondo and Ken Block, and RI Center for Freedom and Prosperity's Mike Stenhouse.  

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Governor Lincoln Chafee

"My goal is to have the state continue to focus on the fundamentals.  We will invest in education, workforce development and infrastructure , and provide aid to  cities and towns to lessen the burden on property taxpayers.  I’m confident that these investments and our focus on the basics will allow Rhode Island to exceed Moody’s predictions.”
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Speaker Gordon Fox

"Among the many pieces of legislation the House will address will be issues of higher education affordability, expanding apprenticeship opportunities, and offering help to our manufacturers.  We will also look closely at our tax structure to make sure we are competitive with our neighboring states, including the corporate tax and the estate tax, and I will carefully review the recommendations of the commission studying our sales tax.”

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Senate Pres. Paiva-Weed

Greg Pare, spokesperson for the Senate President, said that the Senate is planning to issue recommendations soon on workforce development initiatives to address the skills gap among Rhode Island job seekers.

"An example of a proposal anticipated in that report is the elimination of state’s Indirect Cost Recovery on the Job Development Fund, which is about $1.2 million this year. Those funds would be directed towards job training and skills development programs to provide immediate impact and help workers gain the skills necessary to succeed in today’s economy."

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Gen. Treasurer Raimondo

"To grow our economy, we need to make Rhode Island a leader in manufacturing again.  Great things can happen at the intersection of government, higher education, and the private sector.  Rhode Island is lucky to have thriving institutions in each of these three sectors, and we need to foster collaboration among them to find solutions to our challenges, and spark our economy.  

By promoting partnerships in high-growth areas, [Rhode Island Innovation Institute] will help grow our manufacturing base, and create new, high-quality jobs."  

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Ken Block

"First, we need to fix Rhode Island’s broken Unemployment Insurance program. The state’s Unemployment Insurance tax, paid by employers, is ranked worst in the country by the Tax Foundation. It is one of the factors that makes Rhode Island an uncompetitive place to do business. Also, it is inherently unfair that a large group of businesses are effectively subsidizing the payrolls of a small group of businesses who misuse the system. There is a simple change to state law that can fix this problem."

"Rhode Island’s temporary disability tax (TDI) is broken, and places an unnecessarily high tax burden on Rhode Islanders. This tax, paid for by employees, will be reduced by changing the way we manage the program. As Governor, I will substantially reduce the cost of purchasing this insurance by requiring that Rhode Island’s program adhere to national norms."

"To best encourage new job creation, I propose the following tax incentive: exempt from future capital gains taxes any new investments in Rhode Island-based businesses. This change would create a powerful incentive for investors who are deciding where to locate a new business, or where they relocate an existing one. This proposal has the potential change the economic playing field for Rhode Island."

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Minority Leader Newberry

“It would be overly ambitious to set being #1 as a goal right now, but we think 25, the middle of the pack, is a reasonable goal to set, one we think we should pursue, and one we can achieve,” said Newberry. "One of the initiatives is a requirement that every bill receive a fiscal evaluation before it can be heard by committee, better insuring that legislators know the real cost of the legislation they are acting on."

"Another proposal would exempt social security income from RI state income tax, making Rhode Island more tax-friendly for our seniors and keeping them here rather than migrating to more tax-friendly states."

“Strong action is way overdue here. Nearly 60% of Rhode Islanders now believe that the state is headed in the wrong direction. We think they’re right, and our central goal is to get it turned around."

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Mike Stenhouse

"As part of the Center's 2014 Prosperity Agenda we recommended that the state:
Repeal or rollback of the state’s regressive sales tax; or the requirement that families have no choice on what schools best educate their children; or punitive estate taxes that drive wealthy people to other states; or restrictions on out-of-state companies to sell health insurance in RI; or the minimum franchise tax, which stifles entrepreneurship; or corporate welfare, to level the playing field; or even renewable energy mandates that drive up costs for every family and business …"

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