Growth coming to R.I., but slowly

Where the jobs are
While nearly all sectors of the economy are expected to see job growth from 2014-2018, by the end of the period the state as a whole still will not have recovered all the jobs it lost in the Great Recession.  / Source: New England Economic Partnership/Edinaldo Tebaldi
Where the jobs are While nearly all sectors of the economy are expected to see job growth from 2014-2018, by the end of the period the state as a whole still will not have recovered all the jobs it lost in the Great Recession. / Source: New England Economic Partnership/Edinaldo Tebaldi

Rhode Island’s economy has sustained its recovery, but it also displays troubling signs of major structural problems as the New England Economic Partnership projects regional trends through 2018.

On the positive side, net general sales and gross receipt taxes, a proxy for the state aggregate demand, increased 5.8 percent during the first half of 2015 compared with the same period of 2014.

From August 2014 to August 2015, there was job creation in manufacturing, professional and business services, trade and transportation, financial activities, leisure and hospitality and in financial services.

Moreover, the unemployment rate decreased significantly in 2015, reaching 5.6 percent in August 2015, which is 5.7 percentage points lower than the peak rate of 11.3 percent in August 2010.

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According to the U.S. Bureau of Economic Analysis, the Rhode Island economy expanded 1.2 percent in 2014 and 1.9 percent in 2013.

The positive developments above, however, are overshadowed by difficulties in the state’s construction and manufacturing industries. Employment in these two key industries is still significantly below pre-recession levels, and the NEEP forecast projects very slow job creation for these industries in the near future.

In addition, the state faces significant problems with its transportation infrastructure. According to the R.I. Department of Transportation, Rhode Island ranks last in the nation in overall bridge condition.

Rhode Island also ranks seventh-highest in average price of electricity to end-use customers in the nation.

Addressing these structural issues might speed up economic recovery and job creation. For instance, if Rhode Works – a 10-year transportation infrastructure project by RIDOT – is approved, $4.7 billion to rebuild roads and bridges would support about 11,000 new jobs.

In addition, opportunities for large infrastructure projects, including power generation and the development of the I-195 district might give a significant boost for the Rhode Island economy over the next decade.

The big picture

Between 2003 and 2008, Rhode Island experienced near stagnation, with an annual average growth rate of its GDP of just 0.2 percent, compared with GDP growth of 1.7 percent in New England and 2.2 percent in the United States.

From 2008 to 2013 the state’s GDP increased 0.9 percent, which was slightly faster than the growth of the New England region (0.6 percent), but slower than the national average of 1 percent.

From 2014 to 2018, the forecast projects that Rhode Island’s Real GDP will grow at an annual rate of 1.8 percent, compared with 2.0 percent in New England and 2.3 percent in the U.S.

While Rhode Island’s unemployment spiked higher than any other state, it has fallen more precipitously than others, and even more quickly than the fall 2014 NEEP forecast predicted. The current forecast expects the rate to drop to 5 percent by 2018, less than what was forecast a year ago.

The forecast for nonfarm job growth is almost unchanged, however. Nonfarm jobs based in Rhode Island are expected to grow modestly during the forecast horizon.

The Labor market

The unemployment rate has decreased significantly in 2013 and 2014 and reached 5.6 percent in August 2015, which is 1.8 percentage points lower than the 7.4 percent in August 2014 and 5.7 percentage points lower than the peak rate of 11.3 percent in August 2010. Rhode Island’s unemployment rate, however, while expected to decline, will continue to be the highest among the New England states. Looking ahead, the jobless rate in the Ocean State is forecast to be 5.3 percent in 2018.

A projected small increase in the size of labor force partially explains this trend. The Rhode Island labor force has been roughly the same size over the last three years, but it is forecast to increase 0.5 percent per year from 2014 to 2018, reaching 567,600 in 2018, compared to a reduction of 0.5 percent from 2010 to 2014.

Total nonfarm employment is forecast to be 484,300 in 2015, compared with 477,300 in 2014 and 471,200 in 2013. Rhode Island’s nonfarm employment is forecast to be 498,300 by 2018. The annual growth rate of employment is forecast to be 0.9 percent from 2014 to 2018 compared with 0.8 percent from 2010 to 2014.

Recession effects remain

The sluggish job creation in Rhode Island is explained by a very poor performance of key industries. More precisely, as of 2014, employment levels in manufacturing, construction, government, trade, transportation and utilities, information, and financial services were still below pre-recession levels.

Significant job losses in both manufacturing (loss of 7,000 jobs) and construction (loss of 4,000 jobs) are particularly troublesome because these industries are vital for the Rhode Island economy. Manufacturing and construction are both high-paying industries that employ workers with skills only applicable/usable in these industries. Thus, displaced workers may be subject to long-term unemployment spells.

Even with slow job creation, the NEEP fall forecast suggests that job creation will take place across most industries in Rhode Island. From 2014 to 2018, four-fifths of all jobs that are expected to be created in the state will be in leisure and hospitality (5,900 jobs), professional and business services (4,600 jobs), financial activities (3,300 jobs), and in education and health services (2,900 jobs). Lacking that growth will be construction (+1,500 jobs), government (+1,400) and manufacturing (+1,100). Thus, by 2018 employment levels in construction, manufacturing and the government sectors will still be below pre-recession levels.

The past poor performance of the construction industry and projected meager job creation in this industry reflects inherent difficulties in the Rhode Island housing market. Construction activity continues to be at historical lows, home prices have not recovered in some areas, and the number of house transactions is as low as that seen in the early 1990s. In 2014, 992 housing permits were issued in the state compared with about 3,000 permits in 2006. Housing construction is estimated to be 1,020 in 2015 and hover at about 1,200 units per year from 2016 to 2018. n

Edinaldo Tebaldi is an associate professor of economics at Bryant University. This piece is adapted from a presentation he gave at the New England Economic Partnership’s October 2015 economic-outlook conference.

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