URI professor: 'RI economy at crossroads'

By ETHAN HARTLEY
Posted 10/15/19

By ETHAN HARTLEY University of Rhode Island professor of economics, Dr. Leonard Lardaro, has presented the most recent data that suggests Rhode island is at an economic crossroads - an inflection point" - which could result in the state either regaining"

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URI professor: 'RI economy at crossroads'

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University of Rhode Island professor of economics, Dr. Leonard Lardaro, has presented the most recent data that suggests Rhode island is at an economic crossroads – an “inflection point” – which could result in the state either regaining economic momentum seen in recent months or suffering the effects of another recession that he believes is rapidly approaching.

The data comes from the Current Conditions Index (CCI), a monthly indicator assembled by Lardaro that “details the present state of the Rhode Island economy by following the behavior of 12 key economic indicators pertaining to housing, retail sales, fiscal pressures, the employment situation, and labor supply.”

Those monthly indicators include government employment numbers; the number of employment services jobs; retail sales figures; the University of Michigan U.S. Consumer Sentiment Index; the number of single-unit housing permits issued in the state; private service-producing employment; manufacturing man-hours; the average hourly manufacturing wage; the seasonally adjusted unemployment rate; the total resident labor force; new initial claims for unemployment insurance (an unemployment indicator); and the occurrence of unemployment insurance regular benefit exhaustion.

Essentially, to boil that down, the CCI looks at the health of Rhode Island’s economy by assessing the number of people working (and not working) in the state and the economic output of the workforce. If more than half of the 12 indicators experience positive changes over figures from the same month a year ago, the state’s economy is expanding (good). If more than half of the indicators experience a negative change over last year, it indicates the economy is in contraction (bad).

Lardaro’s most recent report, reflecting figures for August of 2019, showed that while eight of the 12 indicators experienced a positive trend direction, the negative indicators spelled significant “weaknesses” in the state’s economy. This reflects a slowing from June and July, when the CCI measured a rating of 75 and 83 (out of a best possible score of 100, if all 12 indicators show a positive trend). The August score for Rhode Island according to the CCI was 67.

“Sadly, Rhode Island’s continuing failure to meaningfully reinvent itself as a post-manufacturing economy (since late 1987), aside from the highly publicized deals that often don’t materialize, has left our economy largely ‘adrift’ in the current economic environment,” Lardaro writes in the report. “Taken together, all of this is a sad illustration of an ongoing series of self-inflicted wounds.”

Of particular concern to Lardaro is the low performance indicators shown by the state’s goods-producing sector. The report states that while the average manufacturing wage rose 2.4 percent in August, total manufacturing hours – “a proxy for manufacturing output” – fell 10.4 percent, which is the 11th consecutive time the metric has decreased.

“Particularly disturbing is the fact that the manufacturing workweek has now fallen on a yearly basis for all but one month since last October,” the report states.

Additionally, the amount of single-unit permits for home construction, a measure of new home construction, fell by 9 percent after rising for three of the past four months. Lardaro said on Monday that the state issuing 90 single-unit permits in the entirety of the state constitutes a “great” month for Rhode Island. Lardaro compares this to when the state would issue between 3,000 and 5,500 permits annually in the mid-80s.

But Lardaro’s biggest concern relates to how the health of Rhode Island’s economy is portrayed, most commonly using a figure that he finds to be particularly troubling and misleading – the 3.6 percent unemployment rate.

“That particular statistic is unreliable,” he said. “The unemployment rate inconsistent is because a lot of Rhode Islanders have dropped out of the labor force over a decade.”

The labor force statistics make regular appearances on Lardaro’s Twitter page, where he posts trend charts for various aspects related to the Rhode Island economy on a regular basis. He sees government officials touting the unemployment rate as dishonest, primarily because it conveniently omits one crucial reason that fewer people are unemployed than in recent years – the overall work force in the state is lower too than in the past.

“A fair number of our unemployed stopped looking for work,” he said. “Once you stop looking, you're not counted [towards the unemployment rate].”

At its peak, the number of Rhode Islanders participating in the labor force was 68.6 percent, with 65.4 percent of people employed – which is reflective of numbers from 2006. Thirteen years later, although the unemployment rate remains low, there are actually significantly fewer people in the overall labor force, with just a 64.2 percent participation rate and a 61.9 percent employment rate, according to the report.

“The only phrase for that is ‘train wreck,’” Lardaro said of the troubling labor force trends. He added that although the total labor force number did increase over last month, it was only the second time that has happened in 2019 since January, and was lower than last year.

Some positive trends also are reflected in the report, including an 8.3 percent increase in retail sales. Additionally, new claims for unemployment benefits (an indicator of job layoffs) decreased by 19 percent, the fourth consecutive month it has decreased.

Lardaro said that while government officials still surely hold influence over what will happen next, the ultimate outcome of Rhode Island’s economic future is also largely out of its hands.

“So, at this point, Rhode Island’s economy might well find itself at an inflection point,” the report states. “Will we sustain the uptick in momentum of the last three months or will we revert back to diminished momentum of the past several years? The answer for Rhode Island lies almost entirely with how well the national and Massachusetts economies perform in the upcoming months.”

As for the immediate future, Lardaro said he believes with a 70-75 percent degree of certainty that a new recession will hit by the end of 2020, although it won’t be in the same category as the recession that began around 2007-08.

“That one was so bad it got named,” he said. “The next one won't be as bad but there are a lot of Rhode Islanders left behind, and they're going to get hurt. There are a lot just barely getting by and they're going to get hurt…The problem is that a lot of people have gotten by propping themselves up with debt.”

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  • Justanidiot

    da economie is always at a crossyroads, it is how you decide to react to how da future is going to be. k sara sarah. we is being subjicated by the pour decisions of your four fathers. tanks dad.

    Wednesday, October 16, 2019 Report this