RI’s Economy is Tied for 3rd Worst in Growth, Says U.S. Commerce and Experts Issue Warnings
Thursday, November 15, 2018
A new report released on Wednesday by the U.S. Department of Commerce shows that Rhode Island’s economy is lagging the rest of the country in economic growth and many top experts forewarn that this may be an early indicator of Rhode Island’s economy moving towards a recession.
Texas's gross domestic product is growing more than 120 percent of the rate of RI.
Rhode Island is ranked last in New England and tied for the third worst in America.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTA collection of leading economists are warning that RI may be replicating trends of the past few decades
“Look at the data -- we had negative growth for the 1st and 4th quarters of 2017. That was horrible, but when you have 2 negative quarters that reduces your base for indicators,” Len Lardaro of the University of Rhode Island.
“What this shows is a slowdown in our economic momentum. You know what I say about Rhode Island -- we're 'FILO' -- "First In, Last Out' of a recession. This could be the 'FI' -- we usually weaken 12-13 months before the U.S. This could be tripping us up,” Lardaro said.
Similarly, Bryant University’s Economics Professor Edinaldo Tebaldi also warns that Rhode Island has fundamental economic flaws that lead to the fragility of the state's economy.
“Rhode Island’s slow economic growth is not a recent phenomenon, but rather the norm over the last two decades. While economic growth has accelerated across the nation, Rhode Island’s rate of growth has been slower than that of the New England region and the national average,” said Tebaldi.
“The state’s economy has recovered from the 2008 Great Recession, but structural problems hindering economic growth still persist and, thus, will continue to affect the state’s economic performance in the future,” adds Tebaldi.
Former Dean of the University of Rhode Island's School of Business Ed Mazze said, "Rhode Island's GDP is growing but not as fast as in other states because few products are manufactured in the state. Wages in most Rhode Island occupations have not grown fast enough to support increased consumption of products and services. We are a state of small businesses with a heavy concentration of service industries paying lower wages. Few companies are making major capital investment decisions such as building new facilities, buying equipment, carrying large inventories or building new residential housing."
Unemployment As a Measure
Governor Gina Raimondo constantly trumpets that Rhode Island has low unemployment and that a record number of Rhode Islanders are now working.
However, each of the experts flag that employment is not the critical economic indicator for Rhode Island.
“First, these are total GDP numbers rather than per-capita, so a lot of the fastest-growing states like Texas are growing by attracting workers from other states. Rhode Island’s population growth is slow so our GDP growth is mostly driven by people who are already here,” said James Bailey, Assistant Professor of Economics at Providence College.
“Our unemployment rate has fallen to 4.0%, but this is still above the national average of 3.7%. In addition, a lot of the new jobs being created are lower-wage. Average hourly earnings for private employees in Rhode Island actually fell from $28.05 in March to $27.35 in the latest data,” said Bailey.
Lardaro is even more forewarning about using employment as the measure of economic health or as an indicator to the future.
"The unemployment rate is the worst gauge to look at to base our economy. In this case, what [people are doing] is forgetting the peak ever happened -- people say we have the most Rhode Islanders working now. It peaked in January 2007 [for] resident employment,” said Lardaro.
"The unemployment rate, why we went from double digits to below the national level, was that Rhode Islanders are stepping out of labor force; living next to Massachusetts -- it doesn't matter if you work in or out of Rhode Island; some of it was retirement, the national economy -- it wasn't a heck of a lot what we did,” Lardaro added.
Finally, the finance and insurance industry in Rhode Island shrank last quarter, dragging down growth said Bailey.
Gary Sasse, head of the Hassenfeld Institute at Bryant University echoes the concerns about overweighting employment and says the types of jobs that have been created may not be the types of jobs that help diversify the RI economy. "While Rhode Island employment has been growing, the rate of growth has lagged that of the nation. Of particular concern is employment trends in key economic sectors. BLS data indicates a growth disparity between the United States and Rhode Island in the education and health sectors. A Georgetown University report noted that Rhode Island lost more " good -paying" blue collar jobs than all other states since 1991. In addition demographics is destiny and Rhode Island has not experienced population growth. There is a link between population trends and economic growth," said Sasse.
Is Rhode Island Prepared for the Future?
If Rhode Island’s growth rate continues to trail the rest of the country, it may be an indicator that Rhode Island could be first into an economic slowdown or recession.
“We're not prepared for the next recession. As I said, we go in earlier. That's what scares me, is that we could be seeing the beginnings -- this could be a warning," said Lardaro. "And we don't have that in-house due diligence. You can look at certain statistics and it looks good -- but compared to times like this -- when we get this negative growth rate that then pulls the base down -- that's what happens here. How are we preparing for our next recession?”
Late in October, the Rhode Island Public Expenditure Council warned that Rhode Island's budget fundamentals are stressed, reporting, "Expenditure growth is projected to continue to outpace growth in revenues, perpetuating the state’s cycle of out-year deficits. By FY 2023, the state will face a deficit ranging between $191.1 and $227.0 million (a more detailed review of the state’s current budget position is included in the final section of this report). Even with the higher-than-anticipated closing, out-year deficits will continue to hamper the state’s ability to support long-term investments. Unless the state’s structural deficit is resolved, the state will continue to have to choose between making investments in its future and relying on short-term financial fixes and one-time solutions.”
Lardaro says Rhode Island faces a string of pending economic challenges.
“We have a lot of ticking time bombs. We've had all these years to make the changes [since Rhode Island became a post-manufacturing economy in 1987]. We've got to stop being cheerleaders, and that's why I get attacked -- for being negative. If it's accurate and negative it's incumbent on elected officials to lead -- and they don't lead,” Lardaro added.
“The next recession won't be as bad as '07-'08 -- but the next bombshell is going to be debt. And that's why the market is reacting badly. We just financed a quarter of a billion of debt [for education]. What are their provisions for depreciation? We're taking on a lot of debt and if we go in to FILO it will be more costly to raise money and dig out. What have we really done since the last recession? We're still not competitive, either in business climate and skills, and we're still not resilient enough -- and we don't benefit from growth nationally,” said Lardaro.