we move into the third quarter of 2000, Rhode Island's recovery remains
broadly based, although overall momentum appears to be diminishing. Almost
every sector of Rhode Island's economy continues to improve. Happily, even
those parts that have faltered have seen activity remain at historically
basis for this assessment is the behavior of the Current Conditions Index
(CCI) I formulated. Recall, the CCI is a broadly based diffusion index
that tracks the behavior of twelve critical economic indicators on a
monthly basis. The CCI measures the breadth
of overall economic activity, not its velocity. It ranges from 0 (when no
indicators are improving on a seasonally adjusted year-over-year basis) to
100 (when all 12 indicators improving year-over-year). Values above 50 indicate expansion, while a CCI below its
"neutral" value of 50 reflects contraction.
Home Sales: after a series of records in the 1990s, this indicator has finally
begun to level off. Through April 2000, sales were 2.2 percent below their
level during the first four months last year. Rising interest rates have
thus not had a terribly large negative impact on sales momentum yet.
But, slowing will continue in the near term. As long as the unemployment
rate remains low, and both job creation and consumer confidence do not
weaken, a great deal of strength in existing home sales will remain,
although we will not set another sales record this year.
Sales: Prior to the opening of
the Providence Place Mall, retail sales in Rhode Island had been growing
at rates approaching double digits. Now that the mall is open and the
economy has been performing so well, retail sales are continuing their
stellar performance. Through April, retail sales were 12.6 percent above
their level for the same period last year, in spite of the rate hikes to
date by the Federal Reserve. Expect this blistering rate of growth to
Benefit Exhaustions: This has
been one of the stellar economic indicators for years now. Last year, as
Rhode Island lost some momentum at years end, exhaustions began to trend
upward, threatening to end long periods of double-digit declines.
Fortunately, as growth re-accelerated in the first part of 2000,
exhaustions have resumed their downward trend. Through April, exhaustions
were 13.5 percent below their level last year.
Claims for UI: This is the best available (i.e., most timely) indicator for tracking
layoffs. Like Exhaustions, new claims have fallen a great deal over the
last couple of years. Year-to-date in 2000, new claims have fallen by a
very respectable 8.7 percent. Since New Claims are sensitive to slowing in
the rate of growth, both regionally and nationally, there is some
question concerning the likelihood of sustaining current rates of
improvement through next year.
Force: After eighteen months of
consecutive year-over-year declines that ended in March of 1998, Rhode
Islandís labor force began a period of rapid growth in 1999, reaching or
approaching 2 percent annual rates. Year-to-date as of April, our labor
force is up a healthy 1.3 percent. How long will a state with marginal
population growth (at best) and strong (for us) job growth rates be able
to sustain such lofty growth rates?
∑ Unemployment Rate: This was revised higher for 1999, and we finally went below the 4 percent level in the fourth quarter of last year. The good news continues to be that Rhode Island is currently at full employment (at or below a 4.2 percent unemployment rate). It has been at full employment now for fifteen consecutive months, a feat many of us wondered if we would ever see in this millennium. The bad news is that Rhode Islandís rate of unemployment has moved back its more ďtraditionalĒ place of being the highest in New England.
So, while our economic momentum will slow a bit in the coming months, our
recovery will continue to be fairly broadly based. We have managed to
regain the momentum that dissipated at the end of 1999. Once again Rhode
Island finds itself in the happy situation of continuing to have some
ďmargin for errorĒ as it moves towards the next cyclical peak.
Leonard Lardaro, Ph.D.