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As the third quarter progresses, there is
both good news and bad news about the performance of Rhode Island’s economy.
The good news is that the July Current Conditions Index’s value was revised
higher, from 75 to 83. The bad news is that the CCI for August declined to 67,
as only eight of twelve indicators improved relative to their values one year
ago. Furthermore, August was only the second month this year for which the CCI
failed to exceed its year-earlier value (June was the other). My primary concern
moving forward, which I have written about for several months now, is that the
CCI for the remainder of this year will very likely fail to beat last year’s
values, which would reflect a clear slowdown in our
rate of growth relative to the end of last year. This should not come as a complete
surprise given the clear acceleration in the pace of economic activity for
Rhode Island as 2012 came to an end. Sadly, but not surprisingly, the
combination of fiscal drag from Washington and the government shutdown should
only make these yearly divergences worse.
At times like this it is informative to
look at the performance of the leading
indicators contained in the CCI. For August, all four of these had difficult
“comps” from a year ago. Only two, however, were able to improve relative to
those comps. Don’t expect this to be the last time we encounter this
phenomenon.
Let me reiterate an important point that will become
ever-more relevant that is related to the seeming paradox of how our state's
economy can be showing good momentum yet fail to return to where it was in 2006 and 2007. Current levels of
economic activity depend on both the rates of growth we are experiencing and the prior activity levels
themselves. Rhode Island’s economy was extremely hard hit during The Great Recession, so, when our
recent rates of growth are applied to these depressed activity levels, we continue to see relatively small changes in the actual level of
economic activity. As our rate of growth is slowing, it will now take even longer to
return to where we were pre-recession.
As stated earlier, two of the CCI’s four
leading indicators improved in August. The uptrend in Single-Unit
Permits, a leading indicator of housing, continues, although this indicator
failed to improve in August (last August its rate of growth was 34%). In spite
of this setback, Permits have now settled into a range of 70+ each month. US
Consumer Sentiment improved for the seventh consecutive month in August, rising 10.7
percent. Expect to see it began to weaken, given our nation’s fiscal
dysfunction.
