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:
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.
Rhode Island ended the third quarter on a fairly positive but mixed note, as there was both good news and bad news about our state’s performance. First, the good news: the Current Conditions Index rose from 67 in August to 75 in September, as nine indicators improved overall. Several of those improvements were very substantial changes. The bad good news comes when we contrast our state’s performance this year with that last year: for a second consecutive month, and the third time in four months, the CCI failed to exceed its year-earlier value. During the fourth quarter, it is not unreasonable for us to expect to see this pattern repeated every month. This has been a concern of mine for some time now, and I have written about it in the last few reports, for if this does come to pass, as is likely, it would reflect a definite slowdown in our rate of growth relative to the end of last year. However, in light of the clear acceleration in the pace of economic activity for Rhode Island as 2012 came to an end, this does not come as much of a surprise. The October CCI results will be quite interesting, as they will reflect not only the fiscal drag from Washington, but the effects of the government shutdown as well.
In light of these uncertainties moving forward, it is informative to examine the performance of the leading indicators contained in the CCI. For September, three of the four leading indicators improved in spite of difficult “comps” from a year ago. The only leading indicator that failed to improve, US Consumer Sentiment, fell only slightly (by 0.3%), but this relatively small decline occurred relative to a rise of over 33 percent last September.
So, as we move into the last quarter of 2013, our state’s momentum may be losing a step or two, but a substantial amount of momentum remains, as attested to by the performances of both the leading indicators contained in the CCI and several of its non-leading indicators. This means we will just have to wait longer to ultimately return to where our state’s economy was prior to the Great Recession. Our recent rates of growth applied to the depressed activity levels Rhode Island fell to will continue to generate relatively small changes in the actual activity levels.
As stated earlier, three of the CCI’s four leading indicators improved in September. The uptrend in Single-Unit Permits, a leading indicator of housing, continues, as we have moved well beyond our recession trough (note: the September Permits value is an estimate as the government shutdown has caused a delay in its release until next week). US Consumer Sentiment failed to improve for the first time since January. However, it had an extremely difficult “comp” from last September. In spite of this temporary setback, Sentiment remains in a well-established uptrend that promises to continue as long as the stock market continues to improve.
The remaining leading indicators are related to the labor market. The first of these, Employment Service Jobs, which includes temporary employment, a prerequisite to overall employment growth, rose by a healthy 3.4 percent in September. Its decline last month was the first in over a year. Like US Consumer Sentiment, this one-month problem does not threaten its longer-term uptrend, something that will be important as we move to the last quarter of this year. New Claims for Unemployment Insurance, the most timely measure of layoffs, improved in September, falling by 7.9 percent in spite of a very large decline last year (-25.1%). At present it has no clear trend, which is potentially problematic since a trend of rising layoffs would adversely affect other CCI indicators in coming months. The final leading indicator, Total Manufacturing Hours, which measures strength in our manufacturing sector, rose by 1.6%.
Retail Sales remained very strong, growing by 8.1 percent relative to last September. Private Service-Producing Employment growth remained below one percent, our state’s Labor Force declined again (the sixth time), and our Unemployment Rate notched a bit higher over the month. Finally, Government Employment was unchanged. Has this now reached a bottom?
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Historical Annual CCI Values
Copyright © 2008,2009, 2010Leonard Lardaro, Ph.D. All rights reserved.