RI's Economy Remains in Severe Contraction - Lardaro Report

RI's Economy Remains in Severe Contraction - Lardaro Report

While much of Rhode Island’s economy has returned to more “normal” levels (whatever that means anymore!), overall, things remain subdued, to say the least. It is clear that parts of our state’s economy are moving in the right direction and continue to do so. But unfortunately, the signs of hope these generate continue to be blunted to an uncomfortably large extent by a host of ongoing negatives.

On a yearly basis, things here continue to look bleak. The Current Conditions Index for August remained in severe contraction territory at 25, as only three of its twelve indicators improved. We have now been stuck at that level for the most recent three months. While some indicators have not fallen terribly far from their pre-pandemic levels, that is not the case for many others. Several key indicators remain far below where they were only six or seven months ago. Gauging this is made all the more complicated by an exceptionally large amount of “noise” in the labor market’s survey-based data. Furthermore, changes instituted by the federal government in April have resulted in the data since then being more volatile than would likely have been the case had they continued their earlier procedures.

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I recently heard someone from the DLT attribute the recently unfavorable indicator values, most notably Rhode Island’s Unemployment Rate, to the small sample used to calculate it. Interestingly, that same person never complained about the exact same sample size when the Unemployment Rate was artificially reduced to around 3.4 percent based on a decade-long Labor Force decline. Let me be clear: It is not sample size that is causing these recent problems. Some combination of extreme noise in the data along with seasonal adjustment difficulties and the lack of data smoothing by the federal government is the cause of the “odd” values we are observing. We are now in the midst of a period where tracking the labor market is essentially “follow the bouncing indicator,” at least for survey-based data only.

In terms of yearly comparisons, there is little to cheer about with August’s data. What is most concerning to me is that the non-survey-based data are showing a disturbing deterioration. Benefit Exhaustion, the best measure of longer-term unemployment, has shot higher from a year-over-year change in June of 153.3 percent to 880 percent in August! New Claims for Unemployment Insurance, a leading economic indicator and the best measure of layoffs, has surged from a 337 percent rise in June to 545 percent in August. At least Retail Sales continues to be an improving indicator, but its rate of improvement has deteriorated noticeably since June.