PROVIDENCE – Rhode Island has been plunged into a deep recession by the impact of COVID-19 and won’t begin to recover until the final quarter of 2020, according to an economic analysis prepared for state budget officers.
That’s assuming the pandemic subsides over the summer.
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The impact of the health crisis on the state’s economic outlook represents a sharp contraction, according to Michael Lynch, an economist with IHS Markit. He projects that unemployment will surge over the next several months, reaching 15.9% by early fiscal 2021, which begins in July.
At the end of 2019, Rhode Island was in good shape with an unemployment rate of 3.5% and growth in numerous sectors, led by state and local government, as well as accommodations and food service, he said.
By March, these gains were reversed by the beginning of the wave of layoffs associated with the pandemic’s arrival in Rhode Island.
In March, Rhode Island lost 2,000 jobs in accommodations and food services alone, and the unemployment rate rose to 4.6%, from 3.4% in February.
These figures do not reflect unprecedented job losses that continued in April, once the state acted to enforce social distancing and disease mitigation, through business closures, he told state officials.
Lynch expects Rhode Island will see surging unemployment through the next several months in a cascading effect, as the business closures and job losses influence consumer spending. He estimates unemployment will reach “well into the double digits” by the end of June, before slowly recovering.
“The cascading effects really mean that few industries are immune from receiving damages,” he said.
Lynch prepared an analysis of the state’s economic outlook as part of the state Revenue and Caseload Estimating Conference, a series of hearings which is expected to continue into the first week of May. The process allows the state to prepare a budget estimate for revenue and expenses for the fiscal year that begins in July.
As part of the conference hearing Wednesday, state labor officials gave an extensive update on labor market conditions post-COVID-19.
Donna Murray, an assistant director of the R.I. Department of Labor and Training, reported that more than half of the employees in the state’s accommodation and food services sector filed for unemployment in the first five weeks of the COVID-19 period, representing about a quarter of the jobless claims. This sector includes employees of hotels, motels, restaurants and casinos.
In terms of occupations, she reported, workers in low-wage jobs have been more impacted than others by the social distancing guidelines that have resulted in business closures. Nearly two-thirds of the initial claims filed have been made by workers who earn less than $20 an hour, she said.
The early pain of the economic recession is spread among businesses by size.
The state reported that 23% of Rhode Island’s smallest businesses, those with one to 10 workers, have had at least one employee file a claim for unemployment.
Eighty-eight percent of mid-sized employers, those with 20 to 99 workers, had a worker file an initial claim.
Larger employers have been impacted as well, she reported, with all of the state’s employers of more than 100 people having at least one worker file for unemployment protection.
The state expects that job losses related to COVID-19 will reduce second-quarter wages by 20%, or by $1.1 billion.
The declines in employment and gross state production will be deeper than the Great Recession, Lynch said.
His report projects a 15.9% unemployment rate in Rhode Island in fiscal 2021, which begins in July. The state’s economic recovery will be gradual through fiscal 2022. The state will not fall below 5% unemployment until fiscal 2023, he said.
The economy over the next several years will likely be marked by caution among businesses as well as consumers, he reported. “Businesses, if they have the option to reopen, are cautious about doing so until they know if they can expect customers and income that will make their business worthwhile,” Lynch said. “In terms of the overall duration of the decline, it is confined to a short period. But its magnitude will be severe.”
Mary MacDonald is a staff writer for the PBN. Contact her at macdonald@pbn.com.
