Monday, March 5, 2012

Rhode Island's Real GDP for 2010

We recently received the state real GDP data for the year 2010. The results, at first glance, seem encouraging: RI's 2010 growth rate was 2.8 percent, fourth in New England for that year. For the New England states, growth rates ranged from a low of 1.3% in New Hampshire to a high of 4.2% in Massachusetts. Should RI cheer about this? Are things at long last turning around here?

Before going much farther, let me reiterate my long-held view that state real GDP is quite possibly THE least accurate and most noisy statistic at the state level. But in spite of this, it is the primary "game in town." So, let's analyze the data for what it is (and isn't).

While it is very tempting to focus exclusively on the most recent data point here (the year 2010), that would be very misleading (literally short sighted), since where we are today is a function of past levels of state real GDP along with the rates of growth or decline we experienced in recent years. The problem for Rhode Island is those past rates of growth  -- actually decline during "The Great Recession."

Using actual values, Rhode Island was the only New England state to experience declining real GDP in 2007 (a fall of 1%), as its recession began in June of 2007 based on my Current Conditions Index. It then went on to record rather substantial declines over the next two years, 2% in 2008 and 1.8% in 2009. Remember: continuous declines exert cumulative effects on a state's economy. And, this makes it more difficult to return to where things were before the series of declines began.

In order to take the past directly into account and make it easier to visualize what happened over the entire 2007 - 2010 period (this is what the most recent data release focused on), I have expressed actual values relative to their values in 2007. So, the value for any state in a given year indicates that value as a percentage of that state's 2007 value. A chart of this, which includes a data table, is given below (click to enlarge):

Do I need to say which line represents Rhode Island? The red dotted line "bringing up the bottom" over the entire period is Rhode Island. Compared to the US overall, New England overall, and the six New England states individually, Rhode Island fell the farthest and has rebounded the least. Note that several of the New England states had returned to or exceeded their 2007 real GDP values by 2010, most notably Massachusetts (102.4%), Vermont (101.2%), and Connecticut (100.5%). New Hampshire and Maine were almost back to 2007 levels, with 99.5% and 99.2% levels, respectively. For Rhode Island, we have only managed to return back to 98.9%.

Make no mistake about it, there is no cause for celebration in these numbers. Contrast the unemployment rates of the other New England states with that of Rhode Island, and it is instantly apparent that Rhode Island's labor market is farther away from where it was and wants to be than anywhere else in New England. We don't fare much better for employment as well. Payroll employment in Rhode Island peaked well before either the US or any other New England state and it remains at very depressed levels to this day!

For all of the apologists who will view this and dismiss it based on the convenient label "being negative," let me offer another saying for Rhode Island they can use in their constant search for mediocrity: "Almost doesn't count except in horseshoes, bombing raids, and for the Rhode Island economy." Those far less neanderthal intellectually will instantly appreciate the fact that the only question that matters is whether this is analysis is accurate. If it is, and it is negative, then it would appear to be an appropriate time for our leaders to institute changes that make things better here. It's not as if we haven't had the opportunities to do this, especially during the global meltdown. As the saying goes, "A crisis is a terrible thing to waste." We wasted that crisis, a time that was perfect for Rhode Island to reinvent itself and to make it more competitive so it too could be benefiting from the recent upsurge in national growth. We can't change the past, but we can meaningfully alter the future. We appear to be running out of time to make things significantly better here. Now would be a good time for the efforts to begin!

No comments:

Post a Comment