BACKGROUND

The Current Conditions Index (CCI) is a monthly indicator that details the present state of Rhode Island’s cyclical economic momentum by following the behavior of twelve key economic indicators of housing, retail sales, fiscal pressures, the employment situation, and labor supply:

·        Government Employment

·        Employment Services Jobs*

·        Retail Sales

·        University of Michigan US Consumer Sentiment Index**

·        Single-Unit Housing Permits

·        Private Service-Producing Employment***

·        Manufacturing Man-hours****

·        Average Hourly Manufacturing Wage

·        Seasonally Adjusted Unemployment Rate

·        Resident Labor Force

·        New Initial Claims for Unemployment Insurance

·        Unemployment Insurance Regular Benefit Exhaustions

The CCI ranges from 0, when no indicators improve compared to year-earlier levels, to 100, when all twelve show improvement. Values above 50, the "neutral" value, indicate that the Rhode Island economy is expanding, while values below 50 are indicative of contraction. Prior to "The Great Recession" that began in June of 2007, the CCI had never attained a value of 0, indicating that no indicators improved relative to year-earlier values. This changed in 2008, when the CCI fell to 0 on three occasions, and in 2009, when another value of 0 was recorded. Prior to this, the low for the CCI had been 8, which occurred for only a single month on several occasions. For almost all of 2008, the CCI recorded values of 8. The CCI attained its maximum value of 100 on several occasions, for almost all of 1984 and once in 1986. Note that these values occurred exclusively when Rhode Island was still a manufacturing-based economy.

* Up until February 2006, the CCI used Help Wanted Advertising for Providence, RI as one of its indicators (and toward the end of its use an econometric adjustment was required). This indicator replaces Help Wanted Advertising.
** Prior to the October 2001 report, the CCI used Existing Home Sales in Rhode Island. This indicator replaces Existing Home Sales. 
*** Prior to the January 2003 report, Miscellaneous Service Employment, a major category of the SIC codes, was used. Now that NAICS replaces the SIC codes, the current indicator was chosen to replace Miscellaneous Service Employment.
****Beginning with the November 2005 report, Manufacturing Man-hours will be referred to as Total Manufacturing Hours.

THE CCI THIS MONTH

MONTHLY HIGHLIGHTS:

The time for my equivocation has now come to an end: RHODE ISLAND IS IN A RECESSION. While our economy has had its ups and downs over the last year or so, starting last December we have been unable to attain or sustain any broadly based economic momentum. While some indicators have shown favorable values at times, and that is also true this month, as a group, this has not been the case.

 Years ago, I designed the Current Conditions Index for the purpose of gauging Rhode Island’s cyclical economic momentum. Over the years its track record has exceeded even my wildest expectations, as it leads going into recessions and is coincident with recoveries. The signal it is now providing is clearly one that Rhode Island is currently in a recession that likely began last December. It should be noted that there is no official definition of recessions at the state level. Even the national definition most people believe (two or more consecutive quarters with negative real GDP growth) is not correct. In the present situation, the CCI has been unable to move into the expansion range since last November, its values this year have consistently fallen below the values last year, and done so with largely contraction range values. Given the ongoing disappointing performances of most CCI indicators along with other variables not included in the CCI, it is apparent at this point that we have fallen into a recession.

 You might think, how can we be in a recession when several statistics are still favorable? Because the existence of a recession is not about levels but their sustainability. It has always been difficult to convince people that we are in the early stages of a recession because of this perception. Recession means that current levels will not be sustainable in the coming months, as weakness continues to catch up to and overtake strength in economic numbers. That is exactly what has been happening in Rhode Island since last December. DO NOT focus mainly on Rhode Island’s Unemployment Rate, as so many here, including the media, insist on doing. While the official rate is 4.6 percent, bad in itself, when adding consideration of labor participation, is has been above 6 percent this entire year. Real GDP growth was negative in Q1 and barely positive in Q2 of this year, far below growth rates nationally or regionally (see next page). In August, resident employment fell 3,300 versus a year ago, while jobs lost in payroll employment continue to rise. The list goes on and on, I’m sorry to say. But if you believe Rhode Island is close to but not in a recession, consider national trends that will have a major say in determining the future direction of our economy. Clearly, national growth will slow this year and depending on how the tariff war plays out, it could be even more negative than it has been up to this point.

 So, what can be said about this month's CCI performance? The August CCI value, 33, is again disappointing as only four of twelve indicators improved relative to a year ago. While there were three relatively strong indicator performances, most others were painfully weak. Retail Sales grew 4.5 percent, continuing its recent strength, as did both manufacturing-related indicators. Total Manufacturing Hours grew at a healthy 2.6 percent, as both manufacturing employment (durable goods, anyway) and the workweek expanded. That was the only one of the five leading indicators included in the CCI that managed to improve. Along with this, the Manufacturing Wage increased by 1.7 percent, although its recent performance has been choppy.

 Notable weakness, which sadly was not hard to find again this month, came from Benefit Exhaustions, reflective of longer-term unemployment, which rose by 30.7 percent, New Claims, which are related to layoffs, increased by 8.8 percent, and Employment Service Jobs, a leading labor indicator that deals with future employment, was flat. Even Government Employment fell, a rare occurrence, driven by declines in federal and state employment. Single-Unit Permits, related to new home construction, declined by 9.1 percent, our Labor Force fell, which actually made our Unemployment Rate look better than it actually is, US Consumer Sentiment also declined at a double-digit rate, and Private Service-Producing Employment barely managed to rise (+0.6%).

 Upcoming data revisions should prove to be quite interesting. Ironically, while we have now reaffirmed that Rhode Island has sustained it FI (First In) status, we find ourselves among a surprisingly large number of US states with that dubious designation. We can at least hope that LO (Last Out) is also on hold, or that our “misery” has company.