Monday, February 13, 2023

GoLocalProv Business Team

 

Leonard Lardaro, a top economist at the University of Rhode Island, is voicing concerns about the state of the Rhode Island economy.

“I have become increasingly concerned that a number of indicators, specifically leading indicators, are continuing to falter. The key question moving forward is what the upcoming labor market revisions (re-benchmarking) show.,” said Lardaro.

Lardaro's report comes just weeks after a report from Rhode Island Public Expenditures Council and Bryant University claims that Rhode Island’s economy lags the New England region and the United States in several indicators of economic growth.

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Governor Dan McKee consistently points to the record level of employment as an indicator of the strength of Rhode Island's economy.

 

LARDARO'S CURRENT CONDITIONS INDEX

While Rhode Island’s economy has been slowing for the last few months, at this point, year’s end, I am becoming increasingly concerned. While the Current Conditions Index this month remained at 67, as eight of twelve indicators improved relative to last December, and it remains in the expansion range, not all 67’s are the same. The “best” case for this would be where this value is attained as an increase relative to the last month or months with individual indicators showing healthy amounts of momentum. Better yet, this would be supported by numerous indicators also improving on a month-to-month basis as well. 

Clearly, that is not the case at this time. In the present situation, the CCI value represents a falloff from what we witnessed from July through October, and growth for a number of indicators has slowed. Worst of all, for the second consecutive month, all four of the indicators that failed to improve were leading economic indicators, those whose current values foreshadow what we can expect to observe in the future. This calls into question how rapid the pace of economic growth will be through 2023. In addition to this, monthly values of many of the CCI indicators are not improving, resulting in the Monthly Current Conditions Index remaining stuck in negative territory (see chart on right).

As evidence of this, New Claims for Unemployment Insurance, a leading indicator of layoffs and the best measure we have of layoffs in this state, rose sharply for the second time since the height of the pandemic, even with a very easy comp.

Single-Unit Permits, which reflect new home construction, have dramatically weakened, falling by over 40 percent in December, resuming the downtrend that began a year ago. Employment Service Jobs, a leading indicator of employment, has also fallen now for three consecutive months, as its rate of decline increased, while US Consumer Sentiment fell once again this month.

Retail Sales, the star performer of the twelve CCI indicators, which improved on a current dollar (nominal) basis, has been declining for several months now on an inflation-adjusted (real) basis. Even Total Manufacturing Hours, a leading indicator of manufacturing output, barely managed to rise this month (+0.7%), its worst performance since March of 2021.

Of the indicators just discussed, only two are subject to revision, Employment Service Jobs and Total Manufacturing Hours. Nonetheless, the upcoming data revisions in a few weeks will be very revealing. If Rhode Island data are revised as was the case with national data, things might look a bit rosier, and my concerns would diminish. If, however, should we see downward data revisions, then all bets are off. 

Moving beyond this, for December, both the Employment Rate (percent of the resident population that is employed) and the Labor Force Participation Rate (percent of the population in the Labor Force) declined.

So, while the official (naïve) Unemployment Rate fell from 3.6 percent in November to 3.5 percent in December, the participation-adjusted Unemployment Rate, which takes both participation and employment rates into account, rose from 4.9 to 5.2 percent.

As the national economy slows, we can at least say that December was the eighteenth consecutive month for which Rhode Island’s economy expanded (the CCI was above 50). And several indicators continued to improve, although these are labor-market related and subject to upcoming revisions. Sadly, most of those are concurrent indicators, informing us of where we are at present, not providing information on future direction.  

Finally, the Monthly CCI  remained well in the contraction range for December, equal to 33, as only four of its twelve indicators improved relative to November.
Might this the beginning of FI (First In)? 

 

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