Rhode Island not likely to see big growth for years

The year 2012 shapes up as a difficult year for the Rhode Island economy.
Since the end of the Great Recession, Rhode Island has been unable to re-energize its economy and spur job creation. Slow real gross state product growth and a sluggish job market have caused a significant number of Rhode Islanders to drop out of the labor force and kept the number of employed people hovering at just greater than 500,000 in 2011.
Unfortunately, this gloomy scenario is not expected to change significantly in the short term. The New England Economic Partnership Fall 2011 forecast indicates that Rhode Island’s real GSP will grow at an annual rate of 2.1 percent from 2010 to 2015. This rate is smaller than the expected growth of 2.5 percent for the New England region during the same period.
Even for those with jobs, the annual change in real average wages and salaries is forecast to be just over 0.4 percent from 2011 to 2015. Per capita personal disposable income was $39,582 in the third quarter of 2011, which represents a 1.4 percent increase compared with the 2010 third quarter. Adjusting for changes in the cost of living, real per capita disposable income is expected to decline from 2010 to 2015 at a rate of 0.2 percent
Finding work
The sluggishness of wage growth in Rhode Island is not a surprise, given the past few years’ employment figures as well as the projections for joblessness over the next four years. The NEEP forecast shows expected job growth from 2010 to 2015 of 1.4 percent per year on average, well below the national expectations.
For example, the total number of jobs based in Rhode Island will stay roughly constant from the 2011 third quarter until the end of 2012. The state is expected to add jobs starting in 2013. Average total nonfarm employment in 2011 was 461,800 and is forecast to be 462,200 in 2012, and 467,600 in 2013. From 2012 to 2015, it is forecasted that 28,900 new jobs will be created in the state.
While the number of jobs based in Rhode Island stayed roughly constant over the last 12 months, the unemployment rate decreased from 11.8 percent in the 2010 first quarter to 10.6 percent in the 2011 third quarter. The drop in the unemployment rate is explained by a decrease in the size of the labor force – it dropped from 576,000 in the 2010 second quarter to 562,000 in the 2011 third quarter – as well as an increase in the total number of Rhode Islanders who had jobs either in state or out of state.
Since job creation will be weak in the next couple of years, the unemployment rate is expected to remain greater than 10 percent until the end of 2012, and only reaching 8 percent in 2015. Where the jobs are
Consistent with previous NEEP forecasts, the manufacturing and construction sectors are not expected to add jobs over the forecast horizon. Manufacturing employment is holding constant at about 40,000 jobs throughout the forecast period while construction is forecast to employ 14,700 workers by 2015 compared with 15,200 in the 2011 third quarter.
By contrast, the current growth prospect for financial services has improved compared to previous forecasts. In Rhode Island, financial services employed 29,800 in the 2011 third quarter. The number of jobs in this sector is expected to stay roughly constant in 2012 and then increase by 700 jobs in 2013 and another 1,000 jobs in 2014.
While trade, transportation and utilities, information services, professional and business services, education and health services, leisure and hospitality, and high-tech are not expected to add a large number of jobs in 2012, the forecast suggests most of the jobs that will be created in Rhode Island from 2013 to 2015 will take place in these sectors.
Total employment in leisure and hospitality services has returned to pre-recession levels and is forecast to grow 2.3 percent annually between 2010 and 2015, adding just under 5,000 jobs in the process.
Employment in trade, transportation, and utilities will stay at current levels in 2012 and then increase by 1,000 jobs in 2013 and another 1,000 jobs in 2014, and by the end of 2015, the sector is expected to have added 3,800 jobs to the state’s economy.
Professional and business services are expected to add 6,000 new jobs from 2010 to 2015, a 2.6 percent growth rate, which will bring the sector to just over 60,000 workers by 2015.
Employment growth in education and health services has slowed recently. These sectors employed 102,600 workers in this year’s third quarter, compared with 102,200 workers a year earlier, an increase of just 400 jobs.
Rhode Island’s expected growth rate of 1.3 percent in the education and health services fields from 2010 to 2015 is expected to lag New England as a whole, which is forecast to add jobs at a 1.8 percent rate from 2010 to 2015.
As highlighted in previous NEEP reports, employment in the high-tech industry in the Ocean State has been steady at just over 22,000 jobs since 2004. The NEEP forecast, however, suggests that more than 3,000 jobs will be added in the high-tech sector from the 2011 third quarter through 2015, based on an expected 2.8 percent growth rate from 2010 to 2015. Little break on housing
The median price of a home in Rhode Island by the 2011 third quarter was $215,300, roughly the same as in the 2010 second quarter, but significantly less than a peak median price of $287,000 in the first quarter of 2007.
While the median home price has surpassed previous forecasts, the housing market still shows signs of significant distress in Rhode Island. Expected weak sales and high inventories together with a sluggish economy suggest that a strong rebound in the housing market is unlikely to happen until 2015.
Despite the overall weakness in the market, however, housing in Rhode Island remains expensive compared with household income. For instance, the Rhode Island housing affordability index (ratio of median house price to median household income) was 4.15 in the 2011 third quarter compared with 3.12 in the United States, and the Rhode Island index is forecast to hover at just more than 4 until 2015.
Human capital
The difficult economic conditions during the 2000s caused Rhode Island to rank 49th among the 50 states in terms of population growth from 2000 to 2010. The state added only 4,248 people during this period. Looking ahead, the total population in Rhode is expected to grow just 0.1 percent from 2010 to 2015.
The average educational attainment of the Rhode Island potential labor force is slightly higher than the national average but lower than the average for all New England states. In Rhode Island 30.6 percent of all men age 25 and above and 29.9 percent of all women of the same age have either bachelor’s or graduate degrees compared with an average of 35.7 percent for men and 35.4 percent for women in New England. This suggests that the Rhode Island labor force is in a disadvantaged position in competition for jobs that demand higher qualifications. With the college-age population expected to shrink in the short term, the relative qualifications of the state labor force are not expected to change significantly. &#8226


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 May 2011 economic-outlook conference.

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