Tuesday, September 18, 2012

Current Conditions Index Report: July 2012

Below is an abbreviated version of the July Current Conditions Index report. The full report (in PDF format) along with tables and historical reports is available on my web site: http://www.llardaro.com .

Rhode Island began the third quarter with both good news and bad news. The good news is that its economy actually accelerated at the end of 2011 into mid-2012. While the “official” labor market data continue to show an economy that has fallen off a cliff (I challenge anyone using that data to conclude anything other than RI has entered into a double-dip recession), reality has been very different! The bad news is twofold: first, almost nobody in this state realizes that such improvement in levels and acceleration in the pace of activity occurred (unless they have been following this index and my Blog); second, it is now very clear that the pace of activity Rhode Island attained earlier this year has now moderated significantly. Both the CCI values based on the “official” data (the upper value) and my estimation of the actual numbers (the lower number) show that Rhode Island’s economy has shifted into a lower gear: the “official” number for July fell to 50 while my estimated value declined to barely expanding, at 58.

So, the question now shifts to which indicators will take the proverbial baton and lead any future improvements? While the US economy has slowed, both the Federal Reserve and the European Central Bank have taken strong steps to avoid significant downturns in economic activity during the coming months. One outcome of this, a weakening US Dollar, should help to moderate and hopefully offset some of the recent weakness in our state’s manufacturing sector as exports benefit. Unfortunately, there is a rather long lag before dollar depreciation normally translates into significant improvement in US (and Rhode Island) manufacturing.

In light of all of this, what do we actually know about Rhode Island’s current economic performance? As of July, Rhode Island’s tepid recovery that began in February of 2010, now 29 months old, continues to lose momentum, most notably in the areas of manufacturing and retail. For July, Retail Sales fell (by 1.6%), its first decline since last August, following real strength over every month prior to July of this year. Total Manufacturing Hours barely rose in July (+0.1%), as the workweek declined. Of course, we are told that our Manufacturing Wage is still growing at what is likely the most rapid rate on earth (+11.8%).

In spite of this, things here are now and will remain significantly better than what the “official” data show, especially since the flawed “official” data can be expected to begin showing ever-larger employment declines for the rest of this year. Even for July, we were told that payroll employment fell by an eye-opening 7,300 compared to a year ago. A more accurate reading can be obtained by reversing the sign of the “official” payroll change — overall employment is likely around 7,000 higher than what the “official” data show.

See the full report at: http://www.llardaro.com  .

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