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What an incredible way to end 2012! The
Current Conditions Index for December rose all the way to 92 — its highest
level since November of 2003. It is now abundantly clear that
Rhode Island’s economic performance during the fourth quarter was its strongest
in terms of overall momentum (not levels, though) for quite some time. The fourth quarter average
for the CCI was 80.7 using the flawed labor market data, and 86 with my
estimates of how the numbers will be changed with the release of the
rebenchmarked data. More importantly, though, the labor market data apparently
became less flawed as 2012 progressed, so for December, and hopefully future months,
a single CCI value accurately
characterizes Rhode Island’s economic performance.
For December, eleven of
the twelve CCI indicators improved. A number of these turned in relatively
strong performances. The sole indicator that failed to improve was Government
Employment, which reflects the effects of ongoing fiscal consolidation. While
that indicator hasn’t improved since August of 2010, it might soon bottom if
the momentum gains registered in the fourth quarter are sustained. At any rate,
Rhode Island’s recovery was 34 months old as of December.
What all of this indicates is that during
the fourth quarter, none of the strong
monthly performances we witnessed were “one month wonders.” What we saw
unfolding was a trend of more broadly based economic activity that continued to
increase our state’s economic momentum. It is now safe to conclude that as
2012 ended, Rhode Island’s economy shifted into a higher gear.
In light of this recent momentum, it is
important reiterate the distinction between levels of economic activity and
rates of growth. The Current Conditions Index is a momentum
indicator. As such, its values reflect how broadly based economic activity is
(i.e., the greater the number of improving indicators, the more broadly based
is economic activity, indicating greater underlying momentum). It does not focus on
the levels of the various indicators. So, as 2012 ended, we witnessed a
broadening of economic activity that produced greater momentum, as reflected by
the rates of change in the CCI indicators and our
state’s economy. This says nothing about current levels. So, while Rhode
Island’s economy continues to improve, driven by this added momentum, the levels of key
variables like payroll employment remain well below the values they attained during
the last recovery. We remain about six percent below our last employment peak,
which explains the persistence of high unemployment here. According to the
fourth quarter CCI performance, we are moving towards our prior peak more
rapidly.
For December, all five of the
non-survey-based indicators improved. Retail Sales
sustained its recent strength, registering a strong 3.2 percent growth rate
versus last December, its twelfth increase in the past fourteen months. Along
with this, US Consumer Sentiment rose once again (+4.2%), helped by
improvement in the national economy. Benefit Exhaustions,
reflective of longer-term unemployment, barely fell, but its downward
(improvement) trend remains intact. New home construction, based on Single-Unit
Permits, surged by 35.1 percent, as home construction continues to move
beyond its recent bottom. In spite of this, levels remain extremely subdued by
historical standards, partly the result of the sustained declines in our state’s population. Finally, layoffs,
in terms of New Claims for Unemployment Insurance, fell sharply in December (4.9%),
reversing last month’s increase.
Apparently the flawed labor market data
became less problematic as 2012 ended. So, while its levels remain inaccurate,
year-over-year changes have become more accurate, which explains improvements
in key indicators like the Labor Force, Private Service-Producing Employment, and Employment
Service Jobs. Manufacturing activity, though, has sustained it strength, as Total
Manufacturing Hours rose by 3.7 percent, and our Manufacturing Wage growth
slowed to “only” 4.8 percent.
The Current Conditions Index is a momentum
indicator. Its values reflect how broadly based economic activity is (i.e., the
greater the number of improving indicators, the more broadly based is economic
activity) and the resulting underlying momentum. It does not,
however, dwell upon the levels of the various indicators or the overall
economy. So, at present, assuming the fourth quarter results hold, we are
witnessing a broadening of economic activity here that has produced greater
momentum. This reflects the rates of change of the CCI indicators and our
state’s economy. It says nothing about
current levels. This is where things get a bit discouraging: while Rhode
Island’s economy is improving, the levels of key variables like payroll
employment remain far below the values they attained at the height of the last
recovery (our employment peak occurred in December of 2006). We still remain
about six percent below our employment peak. The recent CCI performance
indicates that we are moving toward our prior peak at a more
rapid rate. Obviously, the greater is sustained momentum, the shorter is the
time before we reach a prior peak.
For November, (at least) nine of the twelve
CCI indicators improved. Importantly, November saw only the second increase in
our state’s Labor Force since the end of 2010! Four of the five non-survey-based indicators,
those that don’t suffer from the flaws currently plaguing the “official” labor
market data, showed substantial improvement versus one year ago. Retail
Sales sustained its recent strength, registering a strong 6 percent growth
rate versus last November, its eleventh increase in the past thirteen months.
Along with this, US Consumer Sentiment once again surged by just under 30
percent, helped by improvement in the national economy. Benefit
Exhaustions, reflective of longer-term unemployment, also fell at a double-digit
rate (-12.3%), sustaining its downward (improvement) trend. New home construction,
based on Single-Unit Permits, rose by 3 percent, providing
further evidence that it reached a bottom several months ago. In spite of this,
its levels remain subdued, partly the result of our state’s declining
population. The sole disappointment was for layoffs, in terms of New Claims for
Unemployment Insurance, which rose by 1.6 percent.
See the full report at: http://www.llardaro.com .
