Rising from the ashes, a mammoth mall takes
shape, obscuring motorists views of an historic
downtown, a sign, as Bob Dylan might say, that the times they are a
changin’.
Is this mall an albatross, with the weight of its tax incentives too
great for Rhode Islanders to bear? A white elephant, rising at a time
when downtown malls seem to be failing elsewhere? Or is this the sign of
positive change, modernity in Rhode Island, a conquest that will bring
new dollars, new shoppers to the upscale mall ready to infuse the Rhode
Island economy with new money, the resulting jobs and additional
development?
What is certain is that Providence Place’s construction is the most
visible sign that things are just not the same in Rhode Island. That the
economy is indeed changing, shifting from a manufacturing to a service
base, and with it the high paying service jobs that come with financial
services, technology and insurance companies, and the lower paying ones
that inhabit malls and food service establishments.
Manufacturing jobs continue to decline in Rhode Island, as they are
nationally, as more and more products are made overseas and more and
more companies are building plants in foreign countries where labor and
material costs are less, and regulations less stringent.
“The shift goes on,” said Gary Ciminero, an independent economic advisor
who also serves as the state House of Representatives economic advisor,
“it is actually happening in a number of states in the Northeast as
well. Some states that are overweight in manufacturing continue to lose
manufacturing jobs and gain service jobs that are native to the region.”
Rhode Islanders went through a year in 1998 in which they were bracing
for the economic slowdown that never came. The Asian crisis, a decline
in the stockmarket, all were supposed cause a slowdown. But the Asian
crisis, says Fleet Financial’s chief economist, Nicholas Perna, had less
of an impact than expected (“The Asian flu, it hardly got a sniffle in
the United States”), and the stockmarket remained over the 9000 mark as
the year was coming to a close.
“Whether you look at consumer spending, the stock market, or employment,
this is an economy that seems to be defying gravity,” Perna said of an
economic recovery that is the longest in peace time, since before the
Civil War.
When will it all end?
“As we get into ’99 it seems to me something has to give,” Perna said.
“Sure, last year I said the economy would slow – and so did other
economists – and it didn’t. If it doesn’t slow in ’99 we’ll aggravate
two stesses.”
The strong economy, he said, has produced a tight labor market that is
beginning to “push up wages and benefits costs and the faster we grow
the bigger our trade deficit gets.”
All that will lead to “a fairly substantial profit squeeze,” some the
result of Asia and tight labor markets. Asia, he said, is making it hard
for U.S. companies to raise prices, while tight labor markets are
driving up costs. And, he expects more “volatility” in the stock market,
with fewer gains and more declines possible. “It eats into capital
spending by companies,” and that results in layoffs.
He said the 1998 layoff announcements, from companies like Boeing and
Citicorp, “are the highest since ’93 and double that in the intervening
years.”
“This is the year the moderation will occur,” Perna said.
So how moderate, how slow? “I look to describe ’99 as the bumpy soft
landing,” Perna said. “The odds on favorite is the economy will continue
to grow, but slowly. Bumpy because part of the economy will feel it is
in a recession bumpy in another sense. I think ’99 is going to be a
year of continued financial market volatility, particularly equities.”
Those industries for which Perna sees a bumpy fall include
manufacturing, agriculture (“I wouldn’t want to be a pig farmer today”),
and oil.
And while Ciminero suggests a “soft landing in 1999,” he projects
“somewhat faster growth in 2000.”
Perna and Ciminero agree that slower growth in Rhode Island means job
growth will slow to 1 percent. University of Rhode Island economist,
Leonard Lardaro is predicting a 0.8 percent job growth.
That growth follows a year in which Rhode Island businesses fared pretty
well, piggy backing on a national economy marked by low inflation and
low interest rates – “a major benefit to the United States,” said Perna,
“and to real people. Thousands of Rhode Islanders benefited from
refinancing their houses, and the runup of stock prices.”
Rhode Islanders also saw an economy that still relies heavily on
manufacturing (80,000 Rhode Islanders remain employed in manufacturing),
but was shifting more toward financial services, tourism, and
technology. The Rhode Island Economic Policy Council is projecting
considering growth in high tech jobs – if the workers can be found – and
new financial services laws last year attracted Fidelity Investments to
Rhode Island, a new Fleet operation in Lincoln, and Fleet’s on-line
brokerage service, Suretrade. CBSI said it would add jobs, and a new
submarine contract means additional jobs at Electric Boat at Quonset
Point.
At the same time, the state lost jobs when Hasbro closed its Central
Falls Play Doh plant, Allied Signal announced the elimination of most
jobs at its plant, and Harold’s Furniture went bankrupt.
And as the year was coming to a close, the debate continued over whether
it was possible to build an environmentally acceptable port at Quonset,
a debate that surely will be concluded by the early part of 1999.
The delay in the process apparently resulted in two shipping lines
looking elsewhere, but Lardaro, who says a port at Quonset can make a
difference in five or 10 years, said “there’s more ships and more
shipping companies.”
Legislatively a program was put in place to eliminate the property tax
on cars, and to phase out the inventory tax, but some questioned whether
the state would really be financially able to accomplish both.
Two pieces of legislation that will hurt us – the phase out of the
excise tax for autos and the inventory tax,” Lardaro said. “In its
seventh year of the phase out, the Rhode Island Public Expenditure
Council projects it will cost $195 million. Just in the phase out, $195
million in the last year. During our best year, as far as surplus goes,
is $65 million. I cannot for the life of me figure out how we are going
to come up with that money.”
Overall, Lardaro says the legislature and governor “really let us down
badly. What they did was myopic, assuming good times would go on
indefinitely.”
But Perna believes governments have less to do with economic fortunes
than regional conditions, or just plain luck.
Why is Massachusetts growing so much faster?” Perna asks. “They ended up
with a very large proportion of financial services (before the dramatic
rise in the stock market), and because of the fortuitousness of having
Harvard and MIT, ending up with high-tech. It’s the luck of the draw,
not a government planner.
“Rhode Island is a very open economy,” Perna said. “Much of what happens
over the next year really depends nationally, globally, regionally. It’s
trade with other states, other countries that determines Rhode Island’s
fortunes.”
So what’s ahead? Lardaro said “Let’s enjoy 1999. I’m projecting a 0.8
percent gain in employment. It’s not the end of the world.”
Ciminero: “Soft landing in 1999. Somewhat faster growth in 2000.”
And Perna, who sees moderate growth in 1999, cautions that “people are
very manic depressive about the economy. When it’s hot, it’s great. When
it cools off, it’s the end of the world. The reality is in the middle.
It is important not to get suckered into either extreme.”
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