BACKGROUND

The Current Conditions Index (CCI) is a monthly indicator that details the present state of the Rhode Island economy by following the behavior of twelve key economic indicators pertaining to 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:

April’s economic reprieve ended abruptly in May, as the Current Conditions Index slipped back into contraction territory. While we have moved beyond February’s horrible data, May’s data is, as the saying goes, nothing to write home about. First and foremost, the CCI has remained below year-earlier values for every month of this year, which illustrates that our economic momentum continues to fade relative to 2024. Second, while there are clearly improving indicators this month as there have been for much of this year, rates of improvement are not terribly strong. Not surprising, as we continue to slow. Finally, once again this month, a majority of the five leading economic indicators contained in the CCI failed to improve.

This leaves open the question of whether Rhode Island’s economy is in a recession. While I can’t entirely rule that out, it is still a bit too early to make a definitive recession call. Looking at CCI values, I am reminded of wrestling, where a shoulder is pinned to the mat for a few seconds, but not enough to call the match. That’s my best guess as to where Rhode Island’s economy stands as of May. While I can’t rule out that Rhode Island has entered the early stages of a recession, I can’t definitely rule that possibility in either. Stay tuned.

Setting all of this aside, there were a few things to cheer about again this month. First and foremost, Retail Sales, a critical economic indicator that has shown strength through almost the entire post-pandemic period, rose by 2.3 percent. The relative magnitude of front loading to avoid tariffs this month is unknown. The other important performance this month concerns Employment Service Jobs, a leading labor market indicator that includes temps. It too rose again in May (+2.4%), its second annual improvement after a very long string of declines. Other than these two indicators, strong performances were largely absent. The mixed performance of our manufacturing sector is something to watch. In May, Total Manufacturing Hours rose by 2.8 percent, as both employment and the workweek increased, its first improvement since last December. As this was occurring, the Manufacturing Wage fell again, this month by 0.1 percent, sustaining its downtrend since last October. Some of this is compositional (above-average portions gained employment relative to below-average portions). But as tariffs continue to hit our goods-producing sector, this will be the key sector to focus on for overall tariff impacts. 

Looking at the remaining May data, we see a weak overall performance. Once again, Rhode Island’s Labor Force fell in May relative to a year ago, as did both the labor force participation rate and the employment rate. As a result, the Participation-Adjusted Unemployment Rate rose to 6.4 percent in May, well above the official rate of 4.8 percent, which lacks any credibility as an indicator of Rhode Island’s labor market slack. A substantial divergence between the two employment measures continued in May, with resident employment (number of employed RI residents) falling once again, while payroll employment (number of RI jobs) continuing to rise. This divergence will eventually resolve itself. Met is that payroll employment will weaken.

Private Service Providing Employment, which rose by 0.2 percent in May relative to a year ago, sustained its string of sub-one-percent growth rates dating back to last June. New Claims, which reflects layoffs, once again rose at a double-digit rate (+23.6%), for its seventh overall increase in the last twelve months. Benefit Exhaustions, which indicate long-term unemployment, rose in May (+8.3%) following a mild decline last month (-3.3%). Along with this is a concerning macro trend, a well-defined uptrend in continuing UI claims. Putting the UI-related data together, it is difficult to find jobs in Rhode Island and unlike the national economy, we don’t really have stasis, as layoffs (New Claims) continue to rise along with continued claims while the number of longer-term unemployed (Benefit Exhaustions) rising as well.

Government Employment rose (+0.9%), following a “blip” decline in March, as federal government employment fell slightly, offset by an increase in local government employment. US Consumer Sentiment dropped sharply again this month          (-24.2%), while Single-Unit Permits, reflective of new home construction, fell at a double-digit rate (-16.1%) for a third consecutive month and a fifth time in the last six months. 

So, whether or not Rhode Island is in the early stages of a recession, this month’s data suggests we are clearly on a recession precipice. Remember, in a recession, while the levels of key indicators might not have fallen dramatically,  current levels, even though they might remain “high,” will continue to fall relative to their values a year (or month) ago.