Updated March 25 at 6:26pm

Clouds clearing, but forecast for R.I. remains dark

Guest Column:
Edward M. Mazze and Edinaldo Tebaldi
The Rhode Island economy has shown some signs of improvement in 2012.

To continue reading this article, please do one of the following.


Clouds clearing, but forecast for R.I. remains dark


The Rhode Island economy has shown some signs of improvement in 2012.

Net general sales and gross-receipt taxes, a proxy for the state aggregate demand, increased 3.8 percent over the first 10 months of 2012 compared with the same 2011 period. This suggests that Rhode Islanders have increased spending, indicating an improvement of overall economic conditions in the state.

The Real Gross State Product, which measures the total economic output of the state, increased 0.7 percent in 2011. Estimates of GSP growth for the first three quarters of 2012 put the rate at below 2 percent.

Going forward, Rhode Island’s GSP is expected to grow at an annualized rate of 2.3 percent from 2011 to 2016. This rate is 0.8 percentage points lower than the 3.1 percent growth expected for the New England region during the same period.

The slow growth of GSP, together with a sluggish labor market, has kept the unemployment rate at very high levels since 2008. As of October 2012, Rhode Island had the second-highest unemployment rate, at 10.4 percent, in the country. The unemployment rate is expected to be 10.1 percent in 2013, 9.1 percent in 2014 and 6.9 percent in 2016.


Total nonfarm employment in Rhode Island was 458,000 in the third quarter of 2012, compared with 460,900 jobs a year earlier. These figures support the widespread perception that the Rhode Island labor market has been stagnant and has failed to recover as both the regional and national labor markets improve.

The forecast suggests that Rhode Island’s job market will continue trailing job creation in the rest of the nation. From 2011 to 2016, the annual growth rate of employment is forecast to be 1.3 percent in Rhode Island, compared with 2 percent in the United States.

While the overall employment numbers are less than stellar, different sectors of the economy are performing better than others. For instance, employment in leisure and hospitality services is forecast to grow at an annualized rate of 2.7 percent between 2012 and 2016. This puts leisure and hospitality among the fastest-growing industries in Rhode Island.

High-tech jobs also are expected to increase by 2.7 percent from 2012 to 2016, slightly above New England’s 2.6 percent industry growth rate.

The growth prospects for financial services have improved compared to previous forecasts, as the number of jobs is expected to rise at an annualized growth rate of 2.3 percent from 2012 to 2016.

Professional and business services is forecast to grow at an annualized rate of 1.4 percent from 2012 to 2016.

And while employment levels in education and health services have declined from a peak in the third quarter of 2011 to today, the trend is expected to reverse in the near future. Employment in education and health services is forecast to grow at a 1.1 percent annualized rate from 2012 to 2016.


The median price of a home in Rhode Island has hovered around $215,000 since early 2010, which is significantly less than a peak median price of $287,000 in the first quarter of 2007. Consistent with previous rounds of the forecast, the median housing price is expected to increase modestly until 2016, with the median price forecast to be $221,100 in 2013, $229,500 in 2014 and $233,400 in 2016.

The Rhode Island housing affordability index (median house price divided by median household income) is 4 in the 2012 third quarter, compared with 3.4 in the United States, meaning housing in the state is less affordable than the national average and that is expected to continue.

The future looks good. From 2011 to 2016, housing permits are expected to grow 22.7 percent compared with a decline of 21.6 percent from 2006 to 2011.


Rhode Island has faced a significant change in the composition of its population and a slowdown in its growth rate over the last two decades. Rhode Island’s total population is expected to grow just 0.1 percent from 2011 to 2016, which represents an increase of 6,000 people.

Net out-migration was significant from 2005 to 2010, with an average of 5,900 people (net) leaving Rhode Island. There is also evidence that most people leaving the state are those who hold college degrees and cannot find a job in the state.

The composition of the remaining population, however, deserves attention. The age cohort 65 and older is the segment of the population showing the greatest growth from 2011 to 2016, at an annualized rate of 1.9 percent. The age cohort 5 to 19 years old is expected to shrink at a rate of 0.9 percent per year. The age cohort 25-44 is forecast to increase 0.2 percent while the age cohort 45-64 years is forecast to decrease 0.2 percent.

Hence, the size of the working-age population is expected to stay roughly constant during the forecast horizon. Moreover, the increase of the population in the age cohort 65 and older may reduce state tax revenue and increase the demand for both public- and private-care services.


From 2008 through 2012, Rhode Island’s economy suffered more than its neighboring New England: high unemployment and underemployment, state and local budget deficits, including underfunded public pension and health-benefit programs, as well as the bankruptcy of Central Falls and the threat of bankruptcy of other cities dragged the Ocean State down. The job-market issue is compounded when businesses cannot find workers with the right skills to fill job openings.

Still, the state is entering 2013 with a few economic victories: a better funding approach to public-pension liabilities, a small surplus in the state budget and Central Falls exiting bankruptcy. On the negative side, the state faces legal challenges from the public-employee unions on the changes to the public-pension programs, and the state may have a budget deficit of $130 million.

Economic growth in Rhode Island will take place when the state can creatively use its strategic assets.

A full-scale economic recovery in Rhode Island will not happen unless there is a plan that includes government, education, labor unions and business leaders working together. The continuing cost of indecision regarding a realistic economic-development plan prevents Rhode Island from heading in the right direction to building a better economy. •

Edward M. Mazze is the distinguished university professor of business administration at the University of Rhode Island. Edinaldo Tebaldi is an assistant professor of economics at Bryant University. This piece is adapted from a presentation they gave at the New England Economic Partnership’s December 2012 economic-outlook conference.


No comments on this story | Please log in to comment by clicking here
Please log in or register to add your comment
Latest News