The economic fallout from the Sept. 11 terrorist attacks might not have been as bad as expected in Rhode Island, according to an index of 12 key economic indicators released last week.
But the local economy remains in a recession, according to the index.
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The Current Conditions Index, compiled by University of Rhode Island economist Leonard Lardaro, shows that both the housing market and retail sales were surprisingly resilient in September.
“When you look at how totally unraveled things became, I’d say the September numbers were better than I thought they would be,” Lardaro said. “At least we haven’t dropped over the edge.”
The CCI was 33 in September, remaining below the “neutral” level of 50 for the seventh consecutive month. Lardaro said six straight months below 50 constitutes a recession.
Retail sales did decline 5.2 percent for the month, but Lardaro said that “anything less than a double digit decline is probably good news in light of September’s events.”
He said the retail sector has been buoyed by record low interest rates on home-equity loans and lines of credit, which have prompted consumers to pour more money into their homes.
Interest rates on home-equity lines of credit stood at about 6 percent last week, vs. more than 9 percent at the start of the year, according to Bankrate.com.
“The wealth effect from rising home equity has allowed retail sales to pretty much hang in there,” Lardaro said.
The overall housing sector continues to be a pillar of strength for the Rhode Island economy. Existing home sales fell 7.1 percent in September, according to the index. But that decline was better than the national average of 11.7 percent, according to the National Association of Realtors.
And the number of permits for single-family homes – up 1.1 percent in September – grew for the fourth time in five months, according to the CCI. Brisk home-construction activity, fueled by low mortgage rates, led to an 8 percent jump in construction employment in Rhode Island.
But that might be the only good news on the job front.
Lardaro said layoffs and weak labor demand have started to take a toll on the state’s unemployment rate. He disputes the 3.9 percent unemployment figure for September recently released by the state Department of Labor and Training.
“The September statistics that are glaringly bad are layoffs and labor demand, and I don’t think those are fully reflected in the (DLT’s) unemployment rate,” Lardaro said, who estimates the state’s September unemployment rate is somewhere between 4.4 and 4.7 percent.
“It is difficult to imagine that as the national (unemployment) rate rose over the past few months and layoffs here acceleratedthat our rate would fall.” Lardaro said.
The seasonally adjusted unemployment rate in Rhode Island fell for the second consecutive month in September to 3.9 percent, according to the DLT. But that figure is subject to revision.
“While the drop in the unemployment rate is a positive sign for the Rhode Island economy, the labor force estimates do not yet reflect any local impact of the tragic events of Sept. 11th,” said DLT Director Lee H. Arnold. “The indirect effects of these events on businesses and workers in our local economy are not expected until the data for October become available.”
Lardaro said that if the state’s unemployment rate creeps higher, it might take longer than the rest of the country for it to recede. That’s partly because retail and service-sector jobs – which have contributed significantly to Rhode Island’s job growth in recent years – will be slow to recover from a recession, he said.
