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BankRI, Lardaro on the Economy Series
March 2004

This has to be the most atypical recovery that I have ever seen. Not only nationally, but at the state level as well. Consider that the national economy is doing much better than it has, statistically at least. Economic growth has accelerated in the last two quarters, confidence then rebounded, housing has remained strong, and the list goes on.
A similar picture pertains to Rhode Island. Based on the performance of my Current Conditions Index, which is a broadly based indicator of Rhode Island’s economy (visit my web site), Rhode Island  fought off a double-dip recession early last year, then went on to better its year-earlier performance for every month starting in May. And, in the fourth quarter of 2003, Rhode Island’s economy turned in the strongest performance it has for several years.

If the national and state economies are doing so well, why does it feel like we are still floundering? More importantly to most people, why is there still so much anxiety permeating the air?

According to the way things are supposed to work, when an economy improves, job growth resumes, many of those who lost their jobs during the “hard times” find employment once again, and, as this occurs, the state’s budget picture straightens out, usually producing some pleasant surprises in terms of smaller-than-expected shortfalls. Not in this recovery! While jobs are being created, almost as many are being lost. And, in today’s economy, the lost jobs are often permanently eliminated, so that when economic growth accelerates, there is no job to return to.  And, if that’s not bad (and uncertain) enough, Rhode Island is moving directly into a major budget crisis – a projected $190 million deficit for the next fiscal year! It seems that the budget surprises are almost always negative, not positive.

In this environment, it is not difficult to see why anxiety is running so high. The “old” recovery patterns appear to have vanished, people aren’t sure if the sunny economic statistics will continue. And, if all of that isn’t bad enough, the budget shortfall Rhode Island must deal with will slow its rate growth, offsetting some if not a substantial portion of the “cyclical” momentum we will experience, likely cutting into consumer confidence.

So, with a recovery like this, who needs a recession? On average, we are doing well. But looking inside of the averages, economic activity remains highly uneven. This reminds me of the old saying about the person who drowned crossing a river with an average depth of 3 feet.

by Leonard Lardaro

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