Top URI Economist: RI’s economy is slowing

Thursday 15 December 2022

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URI Economist Leonard Lardaro PHOTO: File

After two extremely strong months, the economy in Rhode Island weakened somewhat in October. In both August and September, the Current Conditions Index reached 92, with all but one indicator improving. Even more impressive is that the CCI indicators for each of these months beat those of the previous year, which had strengthened – a case of harder comps.

With the national economy slowing, and after such strong economic momentum here, one would expect the pace of activity to slow, resulting in a CCI of 75 in October. Nonetheless, nine of the twelve indicators improved year-on-year, with several tough comps improved from last October. Remember the number one economic guideline: Don’t overdo the value of a single month. After all, October was the sixteenth consecutive month that Rhode Island’s economy was expanding (CCI above 50).


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SOURCE: CCI by Lardaro

We’ll have to see what unfolds for the rest of this year, particularly monetary policy changes, to gauge where we go from here. However, there was a signal that things were about to slow down – the performance of the Monthly CCI Indicator.

Apparently, its readings have been falling since April, leading to an expectation that the deteriorating monthly performance would eventually be reflected in the annual changes. Complicating this call was the fact that October’s payrolls are often re-benchmarked, which is likely to be the case this year. Therefore, any speculation that we are witnessing the first stage of LO (Last Out) is clearly premature. Ironically, large amounts of unspent federal funds that Rhode Island is receiving, if spent in the coming months, will give us a boost throughout much of 2023 and potentially dethrone us from the LO designation!

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SOURCE: CCI by Lardaro

In what might be a glimpse of the future, the two “star” indicators throughout the pandemic and post-pandemic period, retail sales and total manufacturing hours, have slowed significantly. Worse, a key leading indicator, employment services, fell sharply after four months of improvement. So much for the uptrend! Retail sales growth slowed dramatically to just 2.1 percent in October, although it has improved every month since May 2020 on an annual basis. The growth rate of total manufacturing hours fell to 1.2 percent in October.

Do these examples of growth slowdowns predict actual slowdowns in the coming months? It’s quite possible that they could. As has been the case for some time, two labor supply measures improved dramatically in October. Benefit depletion, a reflection of long-term unemployment, fell 48.7 percent, continuing a trend that began in May 2021. New applications, an early employment indicator that reflects layoffs, fell “only” by 38.4 percent compared to the previous year. It, too, has fallen by double digits since July 2021.

As mentioned above, the worrying news this month was for employment agencies, a leading labor market indicator that includes temporary workers. It fell 6.3 percent, erasing several months of improvement. While payroll employment has been improving on an annual basis for some time, it has been falling on a monthly basis for the past two months, which could pose a problem as it remains well below pre-pandemic levels. On the other hand, resident employment (the number of RI residents in state or out of state who are employed) was flat over the past four months, while the employment rate declined in October.

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SOURCE: CCI by Lardaro

Of the two indicators that have been performing poorly of late, U.S. consumer sentiment fell another 16.6 percent, not improving for fifteen straight months, while single-family building permits, which reflect new home construction, declined by double digits ( – 12.4%) and continues its downward trend.

The labor force has recently been expanding at an annual rate, coinciding with rising unemployment rates. The participation-adjusted rate for October rose to 4.5 percent.

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