Friday, April 29, 2011

Rhode Island Unemployment in 2010

While Rhode Island's overall unemployment rate remains among the highest in the country (we seem stuck at  #4 overall), the state's overall average rate masks how much unemployment rates differ among persons in different age groups. The chart below shows the age-breakdown for jobless rates in Rhode Island during 2010 (click to enlarge).

Like the US, Rhode Island had very high teenage unemployment in 2010 (over 25%). But, unlike so many other states, only two age groups had 2010 unemployment rates below 9 percent in this state. A truly incredible statistic (now shown in the chart): the 2010 Rhode Island unemployment rate for teenage males was 35.3 percent, versus "only" 16.5 percent for females. While the participation rates for male teenagers is below that for female teens, this is still a cause for alarm and concern.

Anyone who claims that what the above chart reflects is purely a cyclical phenomenon, related almost exclusively to national and global weakness, is very far off the mark. Yet this is the exactly what (too) many of thing our state's elected "leaders" have been saying since 2008! While the national and global problems did magnify problems here, Rhode Island was far along the path of substantial weakness before those national problems emerged (read my first Blog post that lays out the "stylized facts" for Rhode Island's economy).

So, what is Rhode Island's exit strategy? How do we plan to make truly meaningful inroads into reducing our high across-the-board high unemployment rates, especially when as we balance budgets with large deficits? How these budgets are balanced will be every bit as important as balancing them in general!

Sunday, April 17, 2011

How Many Jobs Are Being Created in Rhode Island?

The media often mess up the reporting of monthly (payroll) employment numbers. Each month, we are given a figure stated as being either jobs gained or jobs lost, which is actually neither. The most recent example of this was in today's ProJo Consumer section. John Kostrzewa, a very capable journalist, fell into this trap. His column on the current Rhode Island recovery stated:
" ... there were 2,000 jobs created in January, February, and March."
Fortunately for Rhode Island, this assessment is far, far off the mark.

To understand this, it is necessary to recall that in a post-manufacturing economy like that in Rhode Island (we made that transition all the way back in Q4 of 1987), job gains and job losses occur simultaneously each month. So, what is typically reported as either being job gains (if the overall change is positive) or job loss (if that change is negative), is in fact the net change in the number of jobs, or the overall change in the level of employment. The chart below, which gives the number of jobs gained and lost each month for the last year, will help to clarify this (click to enlarge it).

What the data actually show is that monthly job loss (on a year-over-year basis) has dropped substantially over the past year, from 7,300 in March of 2010 to 4,400 in March of 2011. Also, while monthly job gain (also on a year-over-year basis) has not gone straight up, it has risen from 1,500 in March of 2010 to 6,000 this March.

When correctly stated and interpreted, the actual employment situation in Rhode Island is very different than what the media usually says. So, for March of 2011, Rhode Island added 6,000 jobs compared to a year ago. But, it also lost 4,400 jobs. So, the net change in the number of jobs, or employment change for March of 2011, was 1,600.

So, in spite of what you might hear or read, Rhode Island is currently adding jobs, and at a pace close to its highest level in quite some time. The flip side is that while monthly job loss has fallen a great deal from what it once was, job loss has been rising since August of 2010, nullifying much of our state's job gains.

Can you figure out what the largest gap between job gain and job loss (August 2010) in the above chart signifies? The answer is the most recent peak in payroll employment. What the employment report stories on Friday apparently failed to note is that while jobs have been increasing of late, so too has job loss, so overall employment has been moving sideways since last August.

Three final points need to be made. First, job gains and job losses are not "givens," beyond the control of anything we do or our state's tax and cost structure. These values are the direct result of a host of factors. Some are beyond our control, like the rate of national economic growth. But most are affected by what we have or haven't done to make Rhode Island a viable place to do business, policies that are critical in the decisions of firms to either locate here, or if already here, to expand their operations. Second, the way Rhode Island balances its long string of budget deficits will directly affect future values of jobs lost and jobs gained, and hence overall employment change. Finally, overall tax revenue is significantly influenced by the pace of employment change. So, to the extent Rhode Island is able to make employment growth higher than it would otherwise have been, future tax revenues will be higher than otherwise. Will this guarantee lower future deficits? Sadly, the answer is no. If our leaders opt to "spend up" to the higher tax revenue, probably little if anything will change.

I have heard a number of our state's leaders refer to themselves as a "new brand" of leader. Until or unless they demonstrate that they will not "spend up" when revenues rise and that they are willing to reign in spending to sustainable long-term levels, I will continue to view them as  little more than the tired brand we've been stuck with for years, Brand X.

Wednesday, April 13, 2011

Media Coverage of the February 2011 Current Conditions Index

The February 2011 Current Conditions Index (the report is given in the prior post and on my website) received coverage in local media. Here is my discussion of the index on Channel 10's Business Talk with Frank Coletta. The Providence Business News, as always, gave very nice coverage to the report as well.

Current Conditions Index: February 2011

The data for Rhode Island look so much better based on the recent revisions that I felt it was finally time for me to produce my monthly report in color. So, in light of this, there are three noteworthy things that I can report this month. First, from this point forward, all of my monthly reports will be in color. Second, the February value of the Current Conditions Index, 67, was actually somewhat of a disappointment compared to the (now revised) values in the second half of 2010. On numerous occasions over the past few years, I wondered if and when I might ever be able to label a value like 67 a disappointment. Happily, that day has finally arrived! Finally, based on the revised data and Current Conditions Index values, Rhode Island’s current recovery has now reached the one year mark. Apparently time really flies when you don’t realize you’re having a good time!

The February Current Conditions Index value, 67, means that eight of the 12 indicators improved compared to their values one year ago. Particularly noteworthy this month was the fact that several indicators improved in spite of very strong “comps” last year. One indicator, Single-Unit Permits, fell partly because its comp from last February reflected a growth rate of 190 percent. But 26 permits for the entire state in February is hardly something to build a recovery on.

 The star performer among all the CCI indicators continues to be Employment Service Jobs. Not only has that indicator improved for the last 15 consecutive months, it did so this month (+1.3%) on top of a 7.4 percent gain one year ago. Recall, we had thought from the earlier data that this indicator had not improved for quite a while. So, such a strong performance from a leading labor market indicator is potentially very good news moving forward.

The other improving indicators generally reflected very positive momentum. US Consumer Sentiment rose by 5.4 percent, quite an improvement from January. Private Service-Producing Employment increased by 1.0 percent, its eleventh consecutive improvement. Manufacturing turned in its most impressive performance in quite a while. Total Manufacturing Hours rose by 5.2 percent, its ninth improvement in the last ten months, as both the workweek and employment rose. Along with this was a very strong increase in the Manufacturing Wage (+3.8%). So, Rhode Island’s manufacturing continues to mirror the national trend. Our Unemployment Rate fell again, from 11.8 percent one year ago to 11.2 percent this month. Unfortunately, it remains stuck well above ten percent. New Claims, a leading labor market indicator, fell by 6.5 percent in February. It is still unclear whether its trend will become one of declining values each month. Ultimately, its trend will be a critical determinant of future improvements in the Current Condition Index. The last improving indicator, Benefit Exhaustions, which reflects long-term unemployment, declined by 7.8 percent in February.

Retail Sales fell in by 2.4 percent in February, while Government Employment declined by 1.6 percent. Single-Unit Permits, as stated earlier, fell 46.2%. Finally, our Labor Force was unchanged in February, which for calculation purposes, means it also failed to improve.
Think of Current Conditions Index values as the number of “cylinders” that our state’s economy is operating on. For February, we were operating on eight cylinders, a healthy number. So, our state’s cyclical momentum continues to be fairly strong. Our main problem is the persistence of a host of structural weaknesses that offset a good deal of our cyclical gains. If we don’t attack these now, we will have lost a golden opportunity to be proactive.

Tuesday, April 12, 2011

Recent Newspaper Article

I recently published an article in The Providence Journal Commentary Page, which the editors gave the title "Bad Government Saps R.I. Recovery." While I didn't select the title, I really can't disagree with it. Here is a link to that article on my website.

Thursday, April 7, 2011

Why is RI's Unemployment Rate So High?

"The" question for Rhode Island -- how can your state's unemployment rate be so high for no obvious reason? For anyone who has observed (or lived through) the way things are done here, the reasons are obvious and numerous. However, a picture can often say a thousand words. Here's my picture (click to enlarge):

If you want to know why our state's unemployment rate is and has been so high (#4 nationally), you need only consider its flip side -- employment. As my last post showed, employment here peaked in December of 2006 -- a full year before the US! So, a prolonged period of substantial employment declines (8% ultimately), created ever-rising unemployment rates.

Revised Data Employment Picture

As you are probably aware, in February we received the revised (i.e., rebenchmarked) labor market data for Rhode Island. The revised numbers are significantly stronger than the previously released data. Based on these, I was able to move the date for Rhode Island's recovery up to February of 2010 from June of 2010.

In an earlier post, I showed comparative employment changes from January of 2005 for Rhode Island, Connecticut, Massachusetts, the US, and New England. I have re-done that chart using the rebenchmarked data. The chart is given below (click to enlarge):

While this is still very depressing, it is actually an improvement from the prior data. But, RI still saw its employment peak before any of the entities in this chart (revised earlier from January of 2007 to December of 2006), we fell farther and faster than any of the others in the chart. What's the good news? Instead of declining by 10% as we had previously thought, our (precipitous) decline was "only" 8% (leaving us at 92% of peak employment). Now that's good news -- Rhode Island style! In other words, we must consult what I refer to as the "fundamental economic equation for the Rhode Island economy":


Yet another vivid illustration of what I had referred to in a ProJo article a few years ago as Endogenous Mediocrity.

Saturday, April 2, 2011

Radio Appearance on WPRO

On Friday (4/1) I was on WPRO's Buddy Cianci Show. We discussed the article I wrote that was published in the Providence Journal that day. Here is a link to that interview. My Monday appearance with Tara and Andrew is apparently not available for download.