Two years ago economists were warning of a slowdown in the national, regional and local economy. A year ago, the same. Six months ago, the same. The recovery cycle had just gone on too long, economists suggested. We were bound for a slowdown, not necessarily a downturn, but a slowing of economic growth. The slowdown has yet to arrive, and come this February the economic recovery in this country will become the longest peacetime or wartime recovery since 1854.
Businesses are prospering, people are working – in Rhode Island unemployment has stayed around 4 percent or below for the entire year, virtually full employment. And by all indications, this holiday season will rank among the best for retailers – the bricks and mortar kind and the emerging e-commerce retailers.
Seifert Systems Invests in Energy Efficiency to Strengthen Operations
For manufacturers, energy is more than just another operating expense. It plays a critical role…
Learn More
It seems that there’s not much that has been able to slow this economy, either nationally or locally. Not the global economic crisis, not the health care crisis, not the energy revolution, not the technological revolution. In fact, it has been the latter, the technological revolution, that economists credit for feeding this growing economy.
But once again economists are suggesting a slowdown.
”One way or the other this economy has got to slow,” says Wayne Ayers, chief economist for Fleet Boston. “Just because of the longevity, a possible fed tightening. The feds idea is to slow to a sustainable growth.”
Locally too there are those who expect a slowdown. Leonard Lardaro, the University of Rhode Island economist, has often suggested that Rhode Island’s recovery has been tied to national and regional fortunes, noting that job growth here is projected to be last or near last in the nation over the next several years – but growth nonetheless.
Lardaro worries that Rhode Island lawmakers don’t have a concise plan for what happens when and if the economy slows, is concerned about a lack of leadership on a state level, and is troubled because he fears little is being accomplished to improve the state’s educational system. Without a trained workforce it is difficult to attract new firms to the state, and keep the more progressive ones from moving out. The competition for skilled labor has become keen in a tight national job market.
And Lardaro also fears that officials may have promised too much with tax breaks such as the eventual elimination of the property tax on automobiles.
In fact, Lardaro said, in the seventh year of the phase out, the lost income from property taxes will far outstrip any annual surplus Rhode Island has enjoyed to date.
Some insiders suggest that Moody’s, a bond rating agency, agrees with Lardaro. Sources said that in the state’s most recent bond rating review, Moody’s insisted the state agree that if conditions weren’t as anticipated they would abandon, at least in part, their automobile property tax phase out.
And some observers are concerned that certain developments may have an impact on growth here and elsewhere. The health care crisis, with insurance rates rising rapidly, have some businesses reeling, While most experts believe rates will jump by as much as 15 to 20 percent, reports are in from some quarters that some rates have actually increased by more than 60 percent.
Last year saw a health care industry in Rhode Island in turmoil. Harvard Pilgrim Health and Tufts left the state, and for much of the year Blue Cross entertained the idea of merging with an out-of-state partner, only to abandon that when it found its own financial fortunes improving. Lifespan was moving toward become nearly the sole health care provider in Rhode Island, awaiting completion of hearings that would approve its merger with Care New England.
And in financial services, the entire landscape was changing. Over the last few years mergers have eliminated familiar banking names – Hospital Trust, Shawmut, BayBanks, among them. Fleet’s acquisition of BankBoston and the resulting Fleet Boston is the largest of the mergers, but Citizens too got involved by acquiring UST Corp. of Massachusetts and the commercial lending segment of State Street Bank. Fidelity began work on a second building on its Smithfield campus, which will lead to a doubling of its workforce, and Sovereign Bank of Pennsylvania was preparing to take over the BankBoston branches that Fleet and BankBoston were forced to sell to win federal approval for their merger.
In retailing, Providence Place opened after a decade of discussion, and while plans were being developed for a number of transportation improvements, the success at T.F. Green State Airport just simply continued with a record number of travelers using the facility.
And tourism continued to grow, although some, like Lardaro were concerned that too much reliance on this industry would only promote the proliferation of a number of low-paying, part-time jobs.
But most agree that for Rhode Island, success will depend upon its ability to continue to grow its financial services and technology industries. Still Ayers suggests Rhode Island has a large number of traditional manufacturing firms, an area that nationwide, and in Rhode Island, has seen a steady decline in employment.
”Although the consumer has been king in terms of overall growth in gross domestic product in this expansion, capital spending has been extremely important,” Ayers said. And that capital spending has been for information technology, an area that just seems to continue to expand, and one that also has helped create, Ayers said, “very sizable and spectacular gains in productivity, an instrument at keeping inflation at bay.”
Ayers has also said in the past that Rhode Island companies need to become more involved in the growing global economy.
“Only about 14 to 18 months ago we talked about deflation,” Ayers said. “It was really never in the cards. A third of the world was in or close to a recession. Now, we’re well past that point. A year or so ago, (Alan) Greenspan said the U.S. was an oasis of prosperity. Much of the world’s economy is in the process of recovery, Asia and maybe even Japan. South Korea is posting strong growth, Latin America is on the verge of recovery. Europe as well.
But as good as things appear, and as driven by technology as they are, Ayers cautions that it doesn’t mean you throw out the fundamentals. “It doesn’t mean the laws of supply and demand have gone, or the fundamental laws of business cycle have been suspended.”
