ISLAND ECONOMIC FORECAST:
June, Rhode Island’s current recovery was 102 months old, far longer
than the duration of the 1980s recovery that lasted 78 months. During
this recovery, Rhode Island has gotten beyond a major banking crisis,
large-scale defense cutbacks, and a host of structural changes that have
often hurt economic conditions in the short term. Our state’s economy
has made major inroads into reducing long-term unemployment, provided
major gains in retail trade and housing, and as of this month, has been
at full employment for almost a year and a half. To put the present
economic climate in perspective, the current economic climate is what we
were dreaming about back in 1991, amid a serious and deep recession.
As we move towards the end of 2000 and into 2001, the present recovery
will continue and it will remain fairly broadly based. The heightened
aggressiveness by the Federal Reserve in its attempts to slow the pace
of national economic activity, which has already caused interest rates
to rise and stock market gains to moderate, will make the short-term
outlook for Rhode Island a bit less bright than what we have become
accustomed to of late, since Rhode Island’s current engines of growth
continue to be construction, retail trade, business services, and
tourism, all of which are sensitive to the effects of tighter monetary
policy and a slowing national economy.
The positive note in the short-term is that Rhode Island remains in what I refer to as a “buildup stage,” during which large development projects moving toward completion will continue to insulate Rhode Island from some of the negative effects of slowing national and regional activity. Starting next year, however, Rhode Island will find itself in a "morning after" period, where, left to its underlying economic fundamentals, job growth and the overall rate of economic growth will tend to slow. Through the end of 2001, annual job growth will remain well below what it was in the 1997-1999 period. An overview of my Rhode Island forecast for the 2000 – 2001 period is given below.
Employment growth this year benefits from the continuation of our
build-up phase, as financial service incentives, announced hiring gains,
and the ultimate completion of the Providence Place Mall and the new
Fidelity facility occur. Even with these job gains, employment growth
never exceeds the 1.4 percent rate of last year.
The prolonged decline in manufacturing employment that began in 1984 is
predicted to continue, in spite of the absence of defense layoffs,
expansion by several industries, and the effects of electricity
deregulation. The recently enacted rollback in the taxable wage base for
Unemployment Insurance, which lowers the relative cost of labor
here, can be expected to diminish
layoffs in the short term, possibly causing some firms to delay
introducing more cost-effective production methods.
Rhode Island's labor force will continue to grow. Rates of increase will
slow from last year’s level to just under one percent annually.
Contrary to the recent performance of our seasonally adjusted
unemployment rate, the annual
jobless rate is projected to attain an annual low of 3.9 percent this
year, then, as the current stimulus from large development projects ends
next year, rise to 4.5 percent. Resident employment growth, assisted as
it has been throughout this entire recovery by Massachusetts and
Connecticut, will remain strong this year before losing some of its
momentum in 2001.
string of existing home sales records is projected to end with 1999, as
the level remains high by historical standards, but falls 1.4 percent
below its level last year, the result of a dwindling supply of homes for
sale and the effects of monetary tightening. As recent rate hikes take
effect and Rhode Island ’s economy slows its pace over the following
year, home sales fall by an additional 8.9 percent returning them to
approximately their level in 1998. Single-unit permits, which finally
breached the 2,500-unit resistance level in 1998, will barely exceed
that level in 2000, declining 4.6 percent from last year’s level, then
falling by an additional 6.8 percent in 2001, once again dropping below
the 2,500 annual unit barrier.
Rhode Island continues to face the risk that some of its residents who
have secured jobs out-of-state in this recovery may well opt to follow
their jobs and move to those states. The result would be the end of
Rhode Island’s recent string of population increases. While my
forecast does not see this as the dominant trend, the existence
of this force dampens population growth throughout the entire forecast
period. Population growth remains rapid by Rhode Island standards, equal
to 0.3 percent this year, then 0.2 percent the following year.
Rhode Island’s personal income growth will remain fairly rapid this
year, equal to 4.9 percent, then fall to 3.5 percent next year, the
result of a slowing rate of economic growth. Wage and Salary
Disbursements (WSD) are projected to grow by 5.5 percent this year
before slowing to 4 percent next year. Both of these WSD growth rates
are distinct improvements over the rates we witnessed in the early years
of this recovery (in the range of 2.7 – 3.5 percent annually).
negative structural forces (layoffs, downsizing, etc.) that have slowed
Rhode Island’s economy throughout this recovery, while presently
overshadowed by a strong cyclical performance, will persist. After the
current "build-up" stage ends, these structural negatives will
increasingly visible. Layoffs will continue to decline by ever-smaller
amounts, eventually rising. Benefit exhaustions, a stellar performer of
late, will soon begin to lose momentum as well.
Island will remain highly sensitive to fluctuations in national and
regional economic activity throughout this forecast, the result of the
relative importance of tourism, retail trade, and durable goods
employment here. Moderation of the recent boom in construction
employment will also contribute to this in the short-term as the rate of
economic growth slows.