Lardaro Report: RI's Economy Stumbles in July
Len Lardaro, URI
Lardaro Report: RI's Economy Stumbles in July
The July Current Conditions Index fell all the way from 83 in June (when ten of twelve indicators improved) to 58, barely above neutral, as only seven indicators showed improvement relative to last July. Not only was the July value the lowest this year, July marked the fifth time this year the CCI has failed to exceed its year-earlier value. What I find perplexing is that the July 2017 CCI wasn’t exactly stellar - at 75 it should not have been that difficult to improve upon.
Let’s not get too carried away. Remember the first rule of analyzing any economy: Never place too much weight on values for a single month. That guidance provides a meaningful context (or more realistically cover) with which to undertake this analysis. First and foremost, we must remember that Rhode Island’s economy is continuing to perform at its best levels since the Great Recession. Perhaps the greatest positive for July pertains to what I have referred to as the “left behind” indicators—these continued to gain further ground in July, likely a continuation of the LO portion of FILO (First In, Last Out of national economic weakness). So levels overall are indeed getting better. The Current Conditions Index is a momentum index, reflecting how much levels are changing. So, if the July CCI results hold after possible revisions, and more disappointing values follow, an outcome not certain by any means, that would reflect that Rhode Island’s rate of growth is beginning to move toward a peak. Not the end of the world, but something we can’t entirely dismiss, since with our FILO status, our economy peaks anywhere from twelve to eighteen months before the national economy.
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Only two of the five leading indicators contained in the CCI improved this month. New Claims rose in July (+16.0%), postponing its ability to resume a downtrend. Rhode Island’s goods-producing sector’s performance was mixed. Total Manufacturing Hours, a proxy for manufacturing output, an important element of Rhode Island’s strength over the past two years, rose strongly in July (+5.2%) based improvements in both employment and the length of the workweek. Single-Unit Permits, which reflect new home construction, decreased again at a double-digit rate (-18.3%), its sixth decline in the past nine months. Employment Service Jobs, a leading labor market indicator that includes temporary employment, failed to improve in July, perhaps signaled by its recent slowing growth rates. US Consumer Sentiment increased in July (+4.9%), its sixth consecutive improvement. Retail Sales grew again (+3.7%), but growth remained below recent double-digit rates. Government Employment remained unchanged from its level a year ago. Private Service-Producing Employment growth remained above the one percent level, accelerating in July (+2.9%). Finally, Benefit Exhaustions, the most timely measure of longer-term unemployment, fell sharply in July (-11.5%).
Finally, more great news for the mindless economy watchers, those for whom the Unemployment Rate tells all: The Unemployment Rate improved again in July, allaying their fears of the imminent collapse of Western Civilization. Better yet, this was again accompanied by both monthly and annual rises in our Labor Force, its thirteenth consecutive year-over-year increase.
7 Reasons Why RI’s Economy is on the Upswing, and 7 Reasons Why It Is Not - May, 2018
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GE, Infosys, Johnson & Johnson, and Virgin Pulse
There are a few top-tier companies that have decided to open outposts or have chosen to make major investments in Rhode Island. All are receiving substantial incentives to do so.
When the next downturn hits, will they still be in RI?
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Building Hotels and Apartments in Providence
Providence is seeing a bit of a building boom — there are apartment projects like the $55 million project at the base of Smith Hill named the Commons at Providence Station. And, there is the Homewood Suites Extended Stay Hotel as you enter downtown from College Hill.
Those and a number of other projects now in development have created construction jobs, but as Gary Sasse reminds viewers each week on GoLocal LIVE’s Business Monday — these projects do not create many full-time, long-term jobs.
Sasse is the former director of administration for the State of Rhode Island.
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State Revenues — Now on the Upswing
Improving revenue numbers are taking the pressure off State House decision-makers, but there are more and more indications that the improving revenue is, in part, as a result of President Donald Trump’s federal tax cuts.
Speaker Nick Mattiello told GoLocal last week that RI may realize $40 million in new revenue.
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Unemployment Rate
The unemployment rate in the lowest in more than a decade and performing near the national average.
There are criticisms, however, that nearly a third of the new jobs pay under $35,000 a year.
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Highway and Infrastructure
For decades Rhode Island has ranked #50 or close to it for the condition of roads and bridges. Now, in part, due to the RhodeWorks program, Rhode Island's roads and bridges are being rebuilt.
There are more than 150 structurally deficient bridges in Rhode Island.
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Education Improvements
"Chipping away" might be the best way to describe RI's effort to improve education. The effort to bring more technology into classrooms is ongoing. The effort to make the buildings safe and dry is much overdue. But are Rhode Island's efforts moving fast enough?
With Massachusetts ranked consistently as providing the best K-12 education in the country, Rhode Island needs to get bolder to compete.
Is RI thinking bold enough?
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Perception
New York developer Jason Fane has come to Rhode Island and is looking to build a $250 to $300 million residential tower. The largest private development play in Providence in two decades.
Is it a sign that you can do business in Rhode Island? Or, will we chase him away further enhancing the reputation that RI is a bad place to try and do business (unless you are an insider developer/preservationist).
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We Are Old
Rhode Island is the 42nd oldest state in America — the average age is 40.1 years.
Utah, generally ranked as one of the best performing business states, has an average age of 30.7 years of age.
The oldest state — Maine at 44.5 years old.
SOURCE: American Community Survey
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College Graduate Retention
According to City Lab, the Providence-Fall River-Warwick, RI-MA metro area is the second worst in the country for retaining talent.
The region educates the best and the brightest, but retains just 36.5% of grads.
The worst performing region is the Phoenix-Mesa-Glendale, AZ region.
The best retention metro area — Detroit-Warren-Livonia, MI at 77.7%.
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Latinos' Economic Opportunities
While Rhode Island's population is older and stagnant, the fastest growing segment of the population -- the Latino community -- is not realizing the same business opportunities as their peers in other cities.
Providence is the worst city in the country for Hispanic entrepreneurs. According to a 2017 study, Providence ranks 150th out of 150 ranked cities when it comes to Hispanic entrepreneurs.
This is the second straight year in which Providence ranks last.
“Expect the Hispanic and Latino community’s contributions to the U.S. economy to be nothing short of monumental in the coming decades. Not only is this demographic expected to make up a third of the U.S. population by 2050 — translating into immense buying power — this group is also creating businesses at 15 times the national rate, according to one report,” said WalletHub.
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Employment Rate
Each month, the Department of Labor announces the unemployment rate, but URI Economist Len Lardaro says the employment number is what is critical for RI is the employment rate.
“What persons here should be focusing on is our employment rate - the percentage of our working-age population that is employed. This remains well below where it was at our last peak (as does our labor force participation rate). Furthermore, it took Rhode Island over eleven years to finally reach its prior employment peak, and much of that feat is attributable to the fact that part-time jobs have played a major role in defining our job gains over the past decade. Nobody in their right mind can ever accuse Rhode Island of being a job creation machine!,” said Lardaro.
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Declining Number of Children in RI
According to Census data, the number of children in RI has dropped from 247,822 to 223,956 from 2000 to 2010 data -- a loss of 23,866. The loss is -9.6%.
The loss is expected to show a similar loss in 2010 to 2020 data.
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Venture Capital in RI
Nationally, the venture capital numbers in the first quarter were solid in the U.S., but in RI the numbers were again disappointing.
The U.S. recorded a second consecutive quarter with over 30 rounds of $100M+. New England funding increased for the third-straight quarter, as $2.7B was invested across 125 deals, but Rhode Island only saw one deal in the first quarter.
Source: PwC | CB Insights MoneyTree™ Report Q1 2018
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Retail Disruption
Retail continues to crater and RI is dependent on retail jobs as a base of its economy. While disruptors, like Amazon, continue to grow, Rhode Island is not realizing those windfalls. Boston just added another 2,000 top-level Amazon jobs.
