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The third quarter ended on a bit of a sour
note. While Rhode Island’s economy remained in a recovery the magnitude of
which almost nobody in this state seems to fully comprehend, the pace of that
recovery tapered off a bit in September following a very strong August. In
fact, over the past six months, Rhode Island’s economy has apparently been
unable to sustain and extend the momentum from months with very strong
performances — these have consistently been followed by months with more
moderate paces. So, while on average,
underlying strength here has been sustained, throughout the past six months a
frustrating pattern has emerged where faster-growth months are followed by
slower growth the next month.
This pattern can either be good news or
bad news as the US faces the dreaded “fiscal cliff” as we move towards December
31. Should our state’s recent “stop and go” pattern of more rapid economic
growth move more consistently toward “go,” we will have a better margin of
error should the US fall off the fiscal cliff. Make no mistake — we too would
quickly be dragged down along with the US. Should the “stop” pattern come to
dominate, obviously we would find our state closer to stall speed even prior to
year end.
Either way, the effects of the possibility of the
fiscal cliff have already begun to adversely affect businesses. Uncertainty
surrounding the ultimate outcome has hindered their ability to plan for the
future, resulting in their postponing investments in both physical capacity and
hiring. Resolution of the fiscal cliff will also involve fiscal policy lags, so
the ultimate impact of the changes that emerge will occur throughout the first
half of 2013.
For September, six of the twelve CCI
indicators showed improvement, giving a monthly CCI value of 50 using the
“official” data that we know is flawed. Based on my simulations, the more
correct CCI value for September is 58. In spite of the CCI’s decline from
August, there is still positive momentum occurring. Of the five
non-survey-based indicators, those that don’t suffer from the flaws currently
plaguing the “official” labor market data, three showed improvement in
September versus five last month. However, one of those indicators, Retail
Sales, had a very difficult “comp” to beat from a year ago, so its decline
this month should not be construed as a
reflection of weakness.
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See the full report at: http://www.llardaro.com .
