RI’s Economic Recovery Hits a Bump in the Road
Monday, December 13, 2010
Rhode Island’s economic recovery has hit a bump in the road, according to University of Rhode Island economist Leonard Lardaro.
His most recent snapshot of the state of the economy—the monthly Current Conditions Index—shows that it contracted in October. The Index measures the health of the economy on the basis of a dozen factors, yielding a score on a scale of 0 to 100. Scores above 50 show an economy that is growing; those below 50 indicate that it is contracting. In October, the Index fell to 42—after four straight months of scores at 58. It is the lowest it has been since January 2010, when it was 33.
“The number was kind of disturbing, but not the end of the world,” Lardaro said. “I don’t think the recovery is over. I don’t see any reason for that. This is a hiccup and a reminder that this is a shallow recovery.”
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTGood and bad news in October
He said it is normal for indicators that have been improving to pause before going up again—which is what happened to the indicator for consumer sentiment in October, which decreased by 4.1 percent, compared to October 2009. It had been steadily rising for more than a year, according to Lardaro.
Overall, the Index is a mixed bag of good and bad news for October: Retail sales jumped by 5.6 percent. The size of the labor force went down as more Rhode Islanders exhausted their unemployment benefits and stopped looking for work. But that means that the unemployment rate also went down—for all the wrong reasons, Lardaro says. Manufacturing wages rose by 3.8 percent but new claims for unemployment increased by 4.9 percent.
The biggest drop in October was in permits for single-unit homes, which plummeted by 28 percent to a rate of only 615 units, which Lardaro describes as an “abnormally low number.” He said there could be any number of reasons behind it, including the colder weather, difficulties in securing financing, and the large number of unsold homes on the market.
‘A crisis is a terrible thing to waste’
The bottom line? Lardaro said the results show that Rhode Island’s recovery is a fragile one, thanks, he says, to the state’s failure to plan ahead during the recession for a recovery. “A crisis is a terrible thing to waste and I think it’s safe to say the State of Rhode Island wasted this crisis,” Lardaro said.
He points to the new tax reforms that Gov. Don Carcieri signed into law earlier this year—saying the changes should have been made earlier. The reforms won’t become law until January 2011, and won’t have an effect on the economy until six months to a year later. By that time, Lardaro worries that Rhode Island could already be back in a double-dip recession—due to a national slowdown, state budget deficits, and the loss of federal stimulus funds.
Current Conditions Index - October 2010
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