Tuesday, April 15, 2014

Current Conditions Index: February 2014

This is an abbreviated version of the February Current Conditions Index report. The full report, which includes tables, along with past reports, can be found at my website: www.llardaro.com.

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The rugged winter weather that continued into February clearly took its toll on Rhode Island’s overall economic performance, although there were still a number of areas where Rhode Island did well. The most obvious tragedy of the weather was new home construction, which was almost nonexistent in February. Yet at the same time, both Retail Sales and US Consumer Sentiment turned in very strong performances. The Current Conditions Index for February was 58, a decline from its (downwardly revised) value in January of 67, and below the February 2013 value, which was also 67. However, I have scored the CCI for February with an asterisk — guilty with an explanation: were it not for the recorded plunge in Single-Unit Permits (to 26 units for the entire state), the value of the CCI would likely have been 67, matching its values for last month and one year ago.

Yet even if that change had occurred, the CCI still would have failed to improve relative to its year-earlier value for a seventh consecutive month and eighth time in the last nine months. Clearly, these “misses” are not all, nor mostly, attributable to the weather over the past several months, so some slowing of our state’s overall cyclical momentum is continuing. The upside to this, if there is one, is that payroll employment has been rising substantially more than we were led to believe with the data prior to the most recent rebenchmarking, and we just received word that December’s employment number will be revised even higher. I guess this is Rhode Island’s version of life in the fast lane!

For February, two of the CCI’s five leading indicators improved, while two failed to improve, and the fifth was highly weather distorted. Looking first at those that failed to improve, Employment Service Jobs, which includes temporary employment and is a prerequisite to employment growth, fell by 1.3 percent in February, its third consecutive decline. However, based on the recent contradictory rebenchmarking changes to this indicator, the only thing I feel confident in concluding is that this indicator either increased, decreased, or remained unchanged in February. The other leading indicator that failed to improve, New Claims for Unemployment Insurance, is the timeliest measure of layoffs. For February, it rose by 11.5 percent compared to a year ago, its second failure to improve since last August. The downtrend in this indictor since July of 2013 may well have ended, which would be particularly bad news for our state. Finally, Single-Unit Permits, which was highly distorted by the weather, fell by 57.1 percent relative to a year ago. In spite of this, Rhode Island is continuing to move beyond its cyclical trough in new home construction.  

US Consumer Sentiment rose by 5.2 percent in February, its third increase following three consecutive months of declines. The final leading indicator, Total Manufacturing Hours, which measures strength in our manufacturing sector, resumed strong growth in February (+3.0%), boosted by increases in both the workweek and employment.



Tuesday, March 18, 2014

Current Conditions Index: January 2014

Below is a partial version of the January 2014 Current Conditions Index report. The full report, which includes tables and historical data, can be found on my web site: www.llardaro.com .
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The new year began with some happy news concerning Rhode Island employment: payroll employment was revised higher by 3,100 relative to the original estimate. But this is Rhode Island, where behind every silver lining lurks a gray cloud: our jobless rate, which was already either the highest or among the highest in the country, was also revised - even higher. So, there is some cause for celebration in the rebenchmarked payroll data, but the household survey data continues to paint a very discouraging picture as far as how this recovery is progressing.

How did Rhode Island’s cyclical economic momentum fare in light of the revised data? The Current Conditions Index, which was designed for this very purpose, also showed a continuation of the good news - bad news situation we have remained mired in for some time now. First, the good news: in light of the newly released labor market data, the CCI was revised higher for four months in 2013 (April, June, September, and November). And, for January, the CCI rose from the (downwardly revised) December value of 58 to 75, as nine of twelve indicators improved. Now for the bad news: the CCI was only revised lower for two months in 2013 (May and December), but the CCI values based on the new data show that the CCI has now failed to improve relative to its year-earlier value for six consecutive months and seven of the last eight months. So, while the values of several CCI indicators were revised higher, these upward revisions were not sufficient to permit us to exceed the favorable CCI values we experienced at the end of 2012 and into January of 2013. It should be noted though, that there were several ties (like this month).


For January, two of the CCI’s five leading indicators failed to improve. The first of these, Employment Service Jobs, includes temporary employment, which is a prerequisite to employment growth. It fell by 2.4 percent in January, which was its second consecutive decline. Continuation of its recent uptrend is now questionable as its values have apparently plateaued around 9,000 for the better part of a year. The other indicator, New Claims for Unemployment Insurance, the timeliest measure of layoffs, rose by 1.3 percent in January, its first failure to improve since last August. The downtrend in this indictor since July of 2013 may be ending. It will be necessary to observe its behavior over the next several months before any confirmation is possible, however.  

Single-Unit Permits managed to improve by 5.5 percent in January relative to its value one year ago, although weather-related factors make interpreting changes in this indicator very difficult. In spite of this, it is safe to conclude that Rhode Island is continuing to move beyond its cyclical trough in new home construction. US Consumer Sentiment rose at a double-digit rate in January (+10.1%), its second increase following three consecutive months of declines. Expect its uptrend to continue as long as the stock market improves. The final leading indicator, Total Manufacturing Hours, which measures strength in our manufacturing sector, barely rose in January (+0.2%), as a  decline in the workweek almost offset the job gains that occurred. At least part of the decline in hours may be weather related.
 

Tuesday, February 11, 2014

Current Conditions Index: December 2013

Below is a partial version of the December Current Conditions Index report. The full report, which includes tables and historical data, can be found on my web site: www.llardaro.com .
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As the fourth quarter and 2013 came to an end, Rhode Island’s economic performance continued as it had for a while - we are moving forward, albeit at a not very encouraging speed. The news overall continued to be mixed: the good news was that the Current Conditions Index for December rose slightly to 75 from its November value of 67. And, within December’s performance, there were some positive results, mainly that almost all of the CCI’s leading economic indicators improved. That bodes well as we move into 2014. The bad news pertains to the continuation of a disturbing pattern: for a fifth consecutive month, and the sixth time in seven months, the CCI failed to exceed its year-earlier value. Hopefully, since the CCI values in early 2013 were not as strong as they had been in late 2012, we will soon find ourselves exceeding year-earlier values again in the first part of 2014. That is a very real possibility if the US economy continues to strengthen. We’ll just have to keep our fingers crossed. Once we begin to exceed prior-year values this will be the signal that the recovery is once again becoming more broadly based and that our momentum is accelerating. As I noted last month, the ultimate test of how robust Rhode Island’s recovery proves to be will be defined by our ability to accelerate from current and past rates of growth. We can only hope that our state’s continuing failure to meaningfully redefine itself for the information age (other than renaming the EDC) won’t pose too many obstacles. 

For December, four of the CCI’s five leading indicators improved. The other, Single-Unit Permits, barely failed to improve, declining 1.4 percent from a year ago. While this was only its third non-improvement in over a year, this month’s result may well be more of a reflection of December’s weather than of any underlying economic weakness in our state’s housing sector.

US Consumer Sentiment rose sharply (+12.9%) in December following three consecutive months of declines. It has remained in an uptrend that we can expect to continue as long as the stock market continues to improve. Employment Service Jobs, which includes temporary employment, a prerequisite to overall employment growth, rose by 2.0 percent in December following a decline last month. While it remains in an uptrend, it appears quite likely that its values are levelling off around 9,000, assuming that rebenchmarking next month doesn’t change this pattern. Should layoffs begin to rise, this will pose a number of problems to our economic momentum as we move into 2014.

All of the remaining leading indicators improved in December. New Claims for Unemployment Insurance, the timeliest measure of layoffs, improved significantly in December, falling by 21.8 percent, its second consecutive double-digit decline. While this indicator is not yet in a well-defined downtrend, the most recent four months indicate that this may be changing. The final leading indicator, Total Manufacturing Hours, which measures strength in our manufacturing sector, rose by a very healthy 3.5 percent in December, driven mainly by a large increase in the length of the workweek. This indicator has now improved for eleven of the last thirteen months. Combined with the recent behavior of Single-Unit Permits, it is clear that Rhode Island’s goods-producing sector is far from dead.
 

 

Monday, January 13, 2014

Current Conditions Index: November 2013

Below is a partial version of the November Current Conditions Index report. The full report, which includes tables and historical data, can be found on my web site: www.llardaro.com .
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The fourth quarter isn’t playing out as well for Rhode Island as we might have hoped. For November, our state’s positive but not exactly stunning momentum continued. As has been true for some time now, there was both good news and bad news concerning Rhode Island’s economic performance. First, the good news (of sorts): although the Current Conditions Index for November fell to 67 from October’s 75, several key indicators continue to display hopeful signs for the future months. While three of the CCI’s five leading indicators improved this month, the two that failed to improve relative to last November both faced very difficult comps.   The bad news once again emerges when we contrast November’s performance for this year with that in 2012: for a fourth consecutive month, and the fifth time in six months, the CCI has failed to exceed its year-earlier value. Sadly, my earlier suspicion that a pattern of failure to improve on year-earlier values is proving to be correct. Let’s hope this doesn’t continue for much longer. Since the CCI’s readings in early 2013 were not terribly strong, we might find ourselves once again exceeding year-earlier values in just a few months. At any rate, what we are continuing to witness is a slowing in our rate of growth relative to the end of last year. This, by itself, is discouraging since our state’s current rate of growth is not exactly going to cause whiplash. The ultimate test of how robust this recovery proves to be will be defined by our ability to accelerate from current rates of growth. While more rapid national growth will clearly help with this, Rhode Island’s failure to meaningfully redefine itself for the information age (other than renaming the EDC) has left our state’s obstacles to more rapid growth, most notably our non-competitive tax and cost structure, intact. 

As stated earlier, for November, three of the CCI’s five leading indicators improved. The other two were unable to escape the effects of very difficult “comps” from a year ago. US Consumer Sentiment fell sharply (-9.4%), in part because of a 29 percent rise one year ago. November marked the third consecutive decline for Sentiment. It remains in an uptrend at present that will likely continue as long as the stock market continues to rise. Employment Service Jobs, which includes temporary employment, a prerequisite to overall employment growth, fell for only the second time in over a year, declining by 1.3 percent.  Should its uptrend reverse, this would pose problems as we move into 2014. One potentially hopeful thought: these recent declines might be revised away with the upcoming rebenchmarking of the 2013 data.

While our state’s economic momentum continues to slow, pockets of substantial momentum remain, based on the performances of both the leading indicators contained in the CCI and several of its non-leading indicators. Even with these, it will be quite some time before we return to our prior peak in economic activity. 

The remaining leading indicators improved in November. The recent surge in Single-Unit Permits, a leading indicator of housing, continued, as Permits rose by 30.1 percent compared to last November, as Rhode Island’s housing sector continued to move well beyond its recession trough. New Claims for Unemployment Insurance, the most timely measure of layoffs, improved in November, falling by 26.9 percent. Unlike the leading indicators discussed earlier, even though this indicator is not in a well-defined downtrend, the most recent three months indicate that this might be changing. The final leading indicator, Total Manufacturing Hours, which measures strength in our manufacturing sector, rose by 5.6 percent in November, driven mainly by a large increase in the length of the workweek. This indicator has now improved for eleven of the last thirteen months.

Monday, December 16, 2013

Current Conditions Index: October 2013

Below is a partial version of the October Current Conditions Index report. The full report, which includes tables and historical data, can be found on my web site: www.llardaro.com .

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Rhode Island began the fourth quarter by continuing its positive, though not exactly stunning, momentum. Once again, there was both good news and bad news concerning Rhode Island’s economic performance. First, the good news: the Current Conditions Index rose from 67 (revised down) in September to 75 in October, as nine of its twelve indicators improved. Importantly, several of those improvements were quite stunning. The bad good news emerges when we contrast our state’s performance this year with that in 2012: for a third consecutive month, and the fourth time in five months, the CCI has failed to exceed its year-earlier value. I strongly suspect that this will be the dominant pattern throughout the fourth quarter. If this conjecture proves correct, which I believe it will, we will experience a slowing in our rate of growth relative to the end of last year. One could argue that the late-2012 acceleration confronts us this year with a difficult “comp,” which is true. However, as our state’s current rate of growth is not terribly rapid (Rhode Island’s growth rate in real state GDP for 2012 was only 1.4%), the test of how robust this recovery will ultimately prove to be will be defined by our ability to accelerate rather than sustain growth rates comparable to what we observed at the end of 2012. Fortunately, the US economy is growing more rapidly, which will clearly benefit Rhode Island.

One hint of future momentum can be inferred from the October performance of the leading indicators contained in the CCI. For October, four of the five leading indicators improved in spite of difficult “comps” from a year ago. The only leading indicator that failed to improve, US Consumer Sentiment, fell sharply (-11%), but this was heavily influenced by a one-two punch: the combination of the government shutdown and its rise of over 37 percent last October.  While October was the second consecutive decline for Sentiment, it remains in a well-defined uptrend that will likely continue as long as the stock market continues to rise.

So, while our state’s economic momentum appears to be slowing a bit, substantial momentum remains, based on the performances of both the leading indicators contained in the CCI and several of its non-leading indicators. Sadly, this means it will take longer for us to return to our prior peak in economic activity. Welcome to our world! Our elected officials have yet to fully grasp that success in a post-manufacturing economy requires consistent and persistent effort to make improvements to a state’s economy, not merely waiting for things to “turn around.” 

All of the remaining leading indicators improved in October. The uptrend in Single-Unit Permits, a leading indicator of housing, continued with a vengeance, rising 61.3 percent relative to last October. Clearly, Rhode Island’s housing sector is continuing to move well beyond its recession trough.  Employment Service Jobs, which includes temporary employment, a prerequisite to overall employment growth, rose by a healthy 4.2 percent in October. It has declined only once in over a year and it remains in a clear uptrend. New Claims for Unemployment Insurance, the most timely measure of layoffs, improved in October, falling by 8.9 percent in spite of a very large decline last year (-9.8%). Unlike the leading indicators discussed earlier, this indicator is not in a well-defined downtrend at present. Should it begin to rise, it would threaten our state’s future momentum, since a trend of rising layoffs would adversely affect other CCI indicators in coming months, most notably Retail Sales. The final leading indicator, Total Manufacturing Hours, which measures strength in our manufacturing sector, rose by 2.4 percent in October. This indicator has improved for ten of the last twelve months, something I never thought I would see again, especially as one of the foundations of our recovery’s momentum.

Monday, December 2, 2013

Current Conditions Index: September 2013

Below is a partial version of the September Current Conditions Index report. The full report, which includes tables and historical data, can be found on my web site: www.llardaro.com .

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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%.
 
 
 

Wednesday, October 23, 2013

Current Conditions Index: August 2013

Below is a partial version of the August Current Conditions Index report. The full report, which includes tables and historical data, can be found on my web site: www.llardaro.com .

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As the third quarter progresses, there is both good news and bad news about the performance of Rhode Island’s economy. The good news is that the July Current Conditions Index’s value was revised higher, from 75 to 83. The bad news is that the CCI for August declined to 67, as only eight of twelve indicators improved relative to their values one year ago. Furthermore, August was only the second month this year for which the CCI failed to exceed its year-earlier value (June was the other). My primary concern moving forward, which I have written about for several months now, is that the CCI for the remainder of this year will very likely fail to beat last year’s values, which would reflect a clear slowdown in our rate of growth relative to the end of last year. This should not come as a complete surprise given the clear acceleration in the pace of economic activity for Rhode Island as 2012 came to an end. Sadly, but not surprisingly, the combination of fiscal drag from Washington and the government shutdown should only make these yearly divergences worse.   

At times like this it is informative to look at the performance of the leading indicators contained in the CCI. For August, all four of these had difficult “comps” from a year ago. Only two, however, were able to improve relative to those comps. Don’t expect this to be the last time we encounter this phenomenon.   

Let me reiterate an important point that will become ever-more relevant that is related to the seeming paradox of how our state's economy can be showing good momentum yet fail to return to where it was in 2006 and 2007. Current levels of economic activity depend on both the rates of growth we are experiencing and the prior activity levels themselves. Rhode Island’s economy was extremely hard hit during The Great Recession, so, when our recent rates of growth are applied to these depressed activity levels, we continue to see relatively small changes in the actual level of economic activity. As our rate of growth is slowing, it will now take even longer to return to where we were pre-recession.

As stated earlier, two of the CCI’s four leading indicators improved in August. The uptrend in Single-Unit Permits, a leading indicator of housing, continues, although this indicator failed to improve in August (last August its rate of growth was 34%). In spite of this setback, Permits have now settled into a range of 70+ each month. US Consumer Sentiment improved for the seventh consecutive month in August, rising 10.7 percent. Expect to see it began to weaken, given our nation’s fiscal dysfunction.

 
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, fell for the first time in over a year. It registered a decline of 2.1 percent relative to its 5 percent rise last August. While this indicator has generally improved since last April, its slowing rate of improvement coupled with an August decline calls into question whether it will sustain its uptrend. New Claims for Unemployment Insurance, the most timely measure of layoffs, appears to now be in an uptrend (note: we want this to decline), as it has now risen for five of the last seven months. A trend of rising layoffs will adversely affect other CCI indicators in coming months, most notably Retail Sales. The final leading indicator, Total Manufacturing Hours, which measures strength in our manufacturing sector, barely rose (by 0.6%). Its recent performance has been spotty in light of stronger global economies that boost exports and a weakening US economy.


Wednesday, September 18, 2013

Current Conditions Index: July 2013

Below is a partial version of the July Current Conditions Index report. The full report, which includes tables and historical data, can be found on my web site: www.llardaro.com .
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Rhode Island began the third quarter on a very positive note, as the pace of activity during the second quarter was sustained. The performance of Rhode Island’s economy for July was quite good, with the Current Conditions Index registering a value of 75, as nine of 12 indicators improved. Importantly, the overall strength of most of the leading indicators contained in the CCI has continued through all of this year (including July), which is a welcome occurrence as we enter the final half of the year.

Importantly, the primary negative from last month was eliminated in July — the CCI once again beat its value from a year ago. So, only once this year, June, has the CCI failed to beat its year-earlier level. Given the strength we witnessed starting in August of last year, we may well witness several more months where the CCI is unable to exceed its prior-year values, which will reflect a slowing in our rate of growth. Let’s cross that bridge when we get to it. For now, we should be focusing on all of the positive news contained in this month’s data along with Rhode Island's economic performance thus far in 2013.

Before doing this, let me to reiterate a point I made last month. Many remain confused by the seeming paradox of how a state's economy showing such momentum can remain so far below where it was back in 2006 and 2007. The answer, plain and simply, is that current levels of economic activity depend on both the rates of growth we are experiencing and the prior activity levels themselves. During The Great Recession, Rhode Island’s overall economy along with many of its indicators, declined greatly, about as far, if not farther, than just about any other state. So, our recent rates of growth applied to these depressed activity levels continue to generate relatively small changes in the actual level of economic activity here. Don’t expect this to change any time soon!  Rhode Island has yet to undertake the hard work required to reinvent itself and to make its economy more competitive. Recent organizational changes will do virtually nothing return us to where we once were.

All four of the CCI’s leading indicators turned in strong performances this month. Three of them did so in spite of very strong “comps” from a year ago. The uptrend in Single-Unit Permits, a leading indicator of housing, continued, reflecting further movement beyond its trough. Permits rose 6 percent in July and have now settled into a range of 70+ each month. US Consumer Sentiment improved for the sixth consecutive month in July, rising 17.7 percent.

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 1.5 percent in July. While this indicator has consistently improved since last April, its rate of improvement has clearly slowed of late. New Claims for Unemployment Insurance is the most timely measure of layoffs. It recently appeared to be returning to a downtrend, but this change is not apparent at present. New Claims rose by 2.2 percent in July, its fourth increase in the last six months. Declining layoffs will be critical if Rhode Island is to continue improving as we move through the second half of the year. The fourth of the CCI’s leading indicators, Total Manufacturing Hours, which measures strength in our manufacturing sector, jumped by a very healthy 4.1 percent, driven by higher employment and the workweek.