While Alan Greenspan and the Federal Reserve attempt to cool off what has been a red hot economy by raising interest rates, Rhode Island’s fortunes may rise or fall with our ability to find qualified workers, for both high and low end jobs. Struggling as the state has to maintain annual job growth above 1 percent while the nation’s job growth has been nearly double that, economists suggest that without census workers and a major project like Providence Place, job growth next year could drop in half.
At mid-year, economists are suggesting a slowdown, not a recession.
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”We’ll get by,” said University of Rhode Island economist Leonard Lardaro. “We won’t flourish.”
”The forecast for this year is about 1.2 percent job growth and 0.6 percent for year 2001,” Lardaro said.
”Two questions,” said Gary Sasse, director of the Rhode Island Public Expenditure Council. “First, whether we can close the skills mismatch to provide the higher level workers we need to deal with new economy issues? Lower level, are there enough workers who will take low skilled, low paying jobs?”
Among those industries that provide the low-skilled, low paying jobs, is tourism, one of Rhode Island’s fastest growing industries and among its largest. With unemployment below 4 percent, economists suggest that workers who in a different economy might opt for lower paying, low skilled jobs, can find better paying positions.
“Most of the slowdown here is due to a lack of labor supply,” said independent economist, Gary L. Ciminero. On the high end, the lack of skilled workers, a national problem, is “probably the main reason why Rhode Island and Massachusetts are showing some retardation of growth,” he said. “The other end is in short supply everywhere in the U.S. As the unemployment rate dips below 4 percent, low end jobs suffer.”
That reliance on tourism as one of our mainstays also has some people concerned, including Lardaro.
“What has become our engine of growth?” he asks. “Tourism and retail trade. That’s wonderful when you’re going up in the business cycle. But when you start to slow down it’s not as much fun. As the rate of growth slows at the end of this year or early next year, economic activity won’t be as forgiving.”
This remains, however, an economy that continues to expand and reinvent itself, particularly in this technological age.
FISHING INDUSTRY endures in Galilee (above) and helps lure tourists.
Greenspan and others on the Federal Reserve, Ciminero said, are now willing to accept sustainable national growth at about 4 percent, clashing with those on the Federal Reserve that still endorse the old notion of 2 percent growth or below as the way to sustain growth without causing inflation. As a result, Ciminero said the Federal Reserve is likely to take a “lighter hand” and may not increase interest rates again until August.
The 4 percent figure is still well below fourth quarter growth of 6 percent and 5.5 percent the first quarter of this year.
A reason to slow growth is to stave off the threat of inflation. “The Fed is concerned that you have this excess demand for labor pushing up wages and forcing higher costs,” Ciminero said.
“Capacity use is getting gobbled up,” Ciminero said. “Labor demand is very high relative to supply,” worker productivity is up, and we’re “not seeing much on the inflation front. Everyone’s inflation forecast has looked foolish over the last couple of years.”
However, Cinimero said that high-energy costs are now “leaking into core prices,” such as airline fares.
Rhode Island’s economy has most traditionally followed the national fortunes. So a strong national economy bodes well for Rhode Island.
And while the nation has now sustained the longest economic recovery -peacetime or wartime – the “Rhode Island economy now has nine, going on 10 years of consecutive employment growth,” Ciminero said. “We’re actually doing very well on that score and in terms of tax revenue.”
Looking to the future, however, Sasse suggests that Rhode Island must pay attention to some core issues if it is to continue its growth. The state needs to “put in place public policy so we have an appropriate work force to meet our needs, to create a better business environment by dealing with business cost issues, and by reevaluating our policy of creating jobs for tomorrow.
“If we’re going to create high-tech, are we making the right investments in infrastructure, educational system?”
Sasse said that government must consider “whether or not public policy in the state is sympathetic to retaining wealth and attracting capital in the state.”
Ciminero suggests that this is an economy that can continue to expand, but the unknown is the unforeseen “calamitous event. the risk would be if the economy tripped up because of something the fed does.”
ALTHOUGH JOBS in manufacturing diminish steadily, those that remain usually pay above the average for Rhode Island.
What makes it even more difficult for economists has been the technological revolution, the new economy that has generated rapid-fire discoveries at a pace we’ve never encountered before. The Internet will continue to evolve, and experts suggest that the great new wave will be voice recognition, leading to numerous innovations.
“The fastest growing part of business,” Ciminero said, “is technology. It delivers very potent productivity punches as well. It allows incomes to grow very rapidly, without generating inflation. The question is how much longer can it go on? Is it fate or a transformed economy. It is beginning to look more like a transformed economy.”
In spite of some e-commerce failures, such as Disney closing its on-line store, Ciminero suggests the real importance of the Internet that enhances economic growth is “business to business. Every company that is going to survive – even salt mines – has to put in high-tech and information technology enhancements to completeEvery business that’s surviving has to transform itself.”
In Rhode Island the challenge will be to develop the skilled work force to fill the technology jobs.
“I think if we have the will to sustain work in attracting a skilled work force – education and training – if we have the political will to improve the cost, competitiveness of the business climate, we could position ourselves advantageously,” Sasse said. “We’ve made progress. It’s going to take continued progress.”
