Lardaro Report: RI's Economic Momentum Down, But Not Out
Len Lardaro, URI Economist
Lardaro Report: RI's Economic Momentum Down, But Not Out
The good news is that the March Current Conditions Index was revised higher, from its neutral value of 50 to 58, which moves it back into the expansion range. For April, that same value was sustained, as seven of the twelve CCI indicators improved. At this point, even though it is early in the year, the CCI failed to attain an expansion value only once. More importantly, the average of the CCI values for the first four months of this year is now close to the CCI’s value for the last two months, 58. Also, two indicators countered their recent negative trends this month, Single-Unit Permits and Employment Services Jobs. These improvements may turn out to be short lived, however. Finally, the strongest performance by any of the twelve indicators by far continues to be Retail Sales, which has turned in stellar growth rates every month since November.
While this month’s CCI value is welcome news, when looking “under the hood,” things aren’t quite so rosy. April was the eleventh consecutive month for which the CCI has failed to exceed its year-earlier value, reflecting weakening economic momentum. It is important to keep in mind that this weakness extends back to 2017, although recently released data show that Rhode Island remains stuck at its 2015 level of real GDP. While the 5,000 increase in payroll employment was celebrated by our elected officials, it remains barely above its 2006 level, while the other employment measure, resident employment, is not only below its late 2006 value, but has declined for the last six months. Should Unemployment Rate drop from 4.1 percent last April to 3.7 percent this April be cheered? Sadly, no, as the decline in the number of jobless coincides almost exactly with a fall in our Labor Force, which has apparently resumed its long-term downtrend (-0.5% in April). In other words, this jobless rate decline from 4.1 percent to 3.7 percent was meaningless.
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The two highly cyclical leading economic indicators contained in the Current Conditions Index, Single-Unit Permits and Total Manufacturing Hours, turned in a mixed performance in April. Total Manufacturing Hours, a proxy for manufacturing output, fell by 9.9 percent, its seventh consecutive decline, as both employment and the workweek contracted once again. To some extent this is related to tariffs and the trade dispute. However, this might be with us for a while, so it is not meaningful to dismiss the marked deterioration of this indicator as purely “noise.” Single-Unit Permits, a measure of new home construction, did manage a slight increase (+3.6%) after declining for nine of the last eleven months. Given Rhode Island’s static population, declining interest rates will not likely have a significant effect on this indicator, as employment is far more critical. Employment Service Jobs, a leading indicator that includes temps, rose, albeit barely, in April (+0.1%), but it remains stuck below 11,000 at an annual level. Had this indicator not eked out this very small change, the CCI would have fallen to its neutral value of 50. Finally, US Consumer Sentiment fell for the seventh time in the last nine months, driven by all the economic uncertainties that exist.
Government Employment rose over the year for an eighth consecutive month (+1.3%), Private Service-Producing Employment rose for the first time in three months (+1.2%), and Benefit Exhaustions, the timeliest measure of longer-term unemployment, rose by 1.3 percent.
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