BOSTON – Even though Rhode Island’s economy has shown mixed signs of improvement in 2012, the state’s economic outlook has not changed significantly in recent months, according to a report from the New England Economic Partnership.
The report, released Wednesday, pointed to Rhode Island’s positives: an increase in net general sales and gross receipt taxes that is indicative of increased spending in the Ocean State, a sign of improved overall economic conditions in the state.
Rhode Island’s employment numbers have also improved in recent months, with job numbers in construction, manufacturing, leisure and hospitality, and financial services higher than they were during the same period in 2011.
Despite declining jobless numbers, Rhode Island still has the second highest unemployment rate in the country, behind Nevada, and the NEEP 2012 fall forecast predicted that the state’s unemployment rate would remain greater than 10 percent until the third quarter of 2013.
“Job creation is expected to be slow in 2013 and 2014, which will keep the unemployment rate above 10 percent until the end of 2013,” said the report, which forecast that the state’s unemployment rate is expected to be 9.1 percent in 2014 and reach 6.9 percent in 2016.
The New England region as a whole fared slightly better than Rhode Island in NEEP’s forecast, which projected the region’s unemployment numbers to reach 6.8 percent in late 2013 and 5.8 percent by mid-2015.
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Compared to NEEP’s spring forecast of the Rhode Island economy, the fall report showed no major changes in employment trends for information services, professional and business services, education and health services, leisure and hospitality, or high-tech. “These sectors will not add a significant number of jobs in 2012 or in the first half of 2013, but the forecast suggests that job creation will slowly pick up in the second half of 2013.”
From 2012 to 2016, most Rhode Island jobs are expected to be created in leisure and hospitality, high-tech, professional and business services, education, state and local governments, health services, and financial activities. The forecast expects retail, warehousing and utilities, information, wholesale trade and transportation to add very few jobs in Rhode Island over the same period.
“The job market issue is compounded when businesses cannot find workers with the right skills to fill openings. Rhode Island’s population is aging with more baby boomers getting ready to retire. In the near future, this will be an even more serious problem, because those leaving the workforce will have to be replaced by workers with specialized skill sets,” said the report.
If Congress fails to agree on budget changes and the United States falls over the so-called “fiscal cliff,” Rhode Island’s already high unemployment rate will likely get worse, according to the report. The American Action Forum estimated that Rhode Island would lose between 9,745 and 34,805 jobs, many in the defense industry as government contracts are reduced or canceled.
In fact, Moody’s Analytics said that Rhode Island, Connecticut, Vermont and Massachusetts will be among the seven states most negatively impacted due to the fiscal cliff.
“While the likelihood of going completely over the fiscal cliff is low, the projected state employment percentage declines highlight how significantly federal policy and slow action on addressing longer term fiscal concerns could impact the New England state economies,” said NEEP’s New England regional report.
Rhode Island’s real gross state product is expected to reach $45.5 billion in 2013, an increase of 1.9 percent compared with 2012 figures. NEEP estimates that by 2016, Rhode Island’s real GSP will be $48.8 billion.
The median price of a home in the Ocean State is expected to rise 4.6 percent next year to $221,100. By 2016 NEEP predicted that the median price of a Rhode Island home will be $233,400, still 18.1 percent less than than the $285,000 median home price of 2006.
From 2011 to 2016, the annual growth rate in housing permits is expected to be 22.7 percent, compared with a drop of 21.6 percent from 2006 to 2011.
Rhode Island’s population is expected to grow to 1.053 million in 2013 and to 1.057 million in 2016 (an increase of 6,000 people), with those 65 and older showing the greatest growth between 2011 and 2016. The state’s population of those 65 and older is expected to grow at an annualized rate of 1.9 percent during this period, while the state’s population of 25- to 44-year-olds is forecast to grow 0.2 percent, as those age 45 to 64 years old are expected to decline in numbers by 0.2 percent.
An average of 5,900 people left Rhode Island from 2005 to 2010. “Out-migration has slowed down recently but the state is still losing workers to other states,” said the Rhode Island report. “There is also evidence that most people leaving the state are those who hold college degrees and cannot find a job in the state.”
The NEEP report also focused on Rhode Island’s political economy from 2008 to 2012. “Rhode Island’s economy suffered more than its neighboring New England states for many reasons,” said the report, pointing to the state’s high unemployment and underemployment, state and local budget deficits (including underfunded public pension and health benefit programs) and the bankruptcy of Central Falls.
The report analyzed the various reports released in 2012 regarding the restructuring of the state’s economic agencies and what Rhode Island needs to do to turn its economy around.
“Most of the recommendations have been concerned with what the government needs to do to promote economic development rather than with what the business community should do to reverse Rhode Island’s economic situation,” said the report. “Businesses are reluctant to hire new employees, make major capital expenditures and expand their operations because the state lacks a systematic, well-coordinated, data-driven approach to economic development.”
Rhode Island will enter the new year with “few economic victories,” according to the report, which pointed to a better funding approach to public pension liabilities, a small surplus in the state budget and Central Falls exiting bankruptcy.
On the negative side, Rhode Island still faces legal challenges from public employee unions on pension changes and may have a budget deficit of $130 million as it prepared the budget for the next fiscal year.
“Economic growth in Rhode Island will take place when the state can creatively use its strategic assets such as location, strong transportation system, quality of life and outstanding colleges and universities to retain and attract business,” said the report.
According to the forecast, Rhode Island’s economic future stands on the shoulders of small business and the development of new businesses through entrepreneurship. “The state has to make it easier and less expensive to do business so that businesses can grow and add employees.”
“A full-scale economic recovery in Rhode island will not happen unless there is a plan that includes government, education, labor unions and business leaders working together,” said NEEP officials. “The continuing cost of indecision regarding a realistic economic development plan prevents Rhode Island from heading in the right direction to building a better economy.”
