Lardaro: R.I.’s economic climate in statistical recession

RHODE ISLAND'S economic climate is currently in a statistical recession, according to University of Rhode Island economist and professor Leonard Lardaro. / PBN FILE PHOTO/MICHAEL SALERNO

PROVIDENCE – Rhode Island’s economic climate is currently in a statistical recession, different from a “typical recession,” University of Rhode Island economist and professor Leonard Lardaro said Tuesday.

The Current Conditions Index that Lardaro publishes each month had a contraction value of 33 in May, the same as it was in April, with four of 12 indicators, including only one of its five leading indicators, improving year over year. The CCI has now failed to exceed its year-earlier value for nine consecutive months.

A CCI value above 50 indicates expansion, while a value below 50 indicates contraction.  

“The performances of both pandemic period ‘star’ performers in the CCI, retail sales and total manufacturing hours, have deteriorated noticeably,” Lardaro said. “Employment service jobs, reflective of ‘temps’ is now in a downtrend, new claims, which shows layoffs, has moved to an uptrend, our labor force is now declining yearly, single-unit permits, or new home construction, is in a double-digit downtrend, and the list goes on and on.”

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Lardaro said since parts of Rhode island’s economy are far stronger than they have historically been at this point, he is having difficulty making a recession assessment. Individuals and companies overall are in a much stronger position than would normally be the case at this point due to massive monetary and fiscal stimulus nationally that helped produce budget surpluses, capital gains by individuals and savings accumulated during the pandemic lockdown.

“This causes aggregate economic data, which show the behavior of variables on average, to be misleading, as there is greater-than-normal variability in those same variables” Lardaro said. “So, while in the aggregate some variables show weakness or declines, parts of what make up those same variables [ex: sales at retail stores] continue to do quite well.”

Lardaro said based on aggregate numbers, Rhode Island is currently in a statistical recession even though the economy has not declined to the extent the state is approaching a “typical recession.” He notes Rhode Island’s low unemployment rate is a “meaningless indicator” of the strength of Rhode Island’s economy, instead pointing out the participation-adjusted unemployment rate remains above 5%.

“It is quite possible that we might bounce back and forth into and out of this economic state, since at this point, the strength from the earlier mentioned factors has yet to disappear,” Lardaro said. “When conditions return to their typical state, we will see whether or not we have in fact dodged a typical recession.”

Year-over-year CCI indicators in May:

  • Employment services jobs decreased by 13.5%.
  • Government employment increased by 2.7%.
  • Labor force decreased by 0.8%.
  • Manufacturing hours declined by 1.5%.
  • Private services production employment decreased by 2.1%.
  • Retail sales increased by 1%.
  • Single-unit permits decreased by 24.2%.
  • Unemployment benefit exhaustions increased by 47.4%.
  • Consumer sentiment increased by 1.5%.

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