Lardaro Report: Has Rhode Island's Economy Hit Bottom?

Lardaro Report: Has Rhode Island's Economy Hit Bottom?

Hopefully, Rhode Island has now moved beyond the absolute bottom of economic activity it will experience throughout the entire COVID episode. Our state continues to be among those with the lowest incidence and highest testing percentage of all fifty states, a testament to how well this crisis has been managed since its inception. The damage, though, has been devastating. Sadly, it will take Rhode Island years before it gets back to where it was pre-pandemic. My best guess is that we are looking at a three to five-year time frame for this. The ultimate duration will only be reasonably estimable when a vaccine has been developed and ‘herd immunity” is reasonably close at hand. As I have stated in the last few CCI reports, what we are witnessing is not a cyclical phenomenon, but THE definition of an exogenous shock (one that nobody could have predicted). The magnitudes of its effects are enormous.

This, of course, makes it extremely challenging to write a report like this since it is so difficult to characterize where our state's economy currently stands. How should change be defined? Relative to when? Compared to a year ago, things are abysmal. On a monthly basis, however, things are improving, albeit slowly. However, with monthly comparisons, we are comparing to an economy at or near a dead stop, which distorts monthly percentage changes, tending to make them very large. Of course, yearly changes themselves have been highly distorted by the magnitude of the “full stop” to our economy. Statistically, at least, this is a no-win situation! Throw in the fact that Rhode Island’s economy was not doing terribly well before the pandemic hit, and things get even dicier. In light of this, I will do something I have never done before with the CCI, report it as is (based on year-over-year comparisons of its indicators) and for monthly changes. As for the yearly changes upon which the CCI is based, May was another very rough month, with the CCI remaining at 8, as only one indicator improved. Prior to last month, we had not seen such low values since April of 2009, during The Great Recession. Retail Sales, once the CCI’s star performer, fell by 22.3 percent compared to last May. 

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This follows a 17 percent decline in April. US Consumer Sentiment fell by 27.5 percent, no surprise, while Benefit Exhaustions, which reflect long-term unemployment, literally doubled (+102.4%). New Claims, the timeliest measure of layoffs, “improved” further in May, rising by “only” 634.9 percent in May, well below the earlier one-thousand plus year-over-year increases. On a month-over-month basis, which will eventually determine how we are doing on yearly comparisons, things are much brighter, as shown in the following table. Calculating the CCI based on monthly data gives a neutral value of 50, with six indicators improving relative to April. Several of these are leading indicators, most notably US Consumer Sentiment (+0.5%), Employment Service Jobs (+18.9) and New Claims (-61.2%). Rhode Island’s future monthly momentum will be determined by its ability to control the spread of COVID, the impact of expiring government programs and, of course, national economic growth.