Monday, February 11, 2013
Below is an abbreviated version of the December 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 .
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 .