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Rhode Island ended the third quarter on a fairly positive but mixed note, as there was both good news and bad news about our state’s performance. First, the good news: the Current Conditions Index rose from 67 in August to 75 in September, as nine indicators improved overall. Several of those improvements were very substantial changes. The bad good news comes when we contrast our state’s performance this year with that last year: for a second consecutive month, and the third time in four months, the CCI failed to exceed its year-earlier value. During the fourth quarter, it is not unreasonable for us to expect to see this pattern repeated every month. This has been a concern of mine for some time now, and I have written about it in the last few reports, for if this does come to pass, as is likely, it would reflect a definite slowdown in our rate of growth relative to the end of last year. However, in light of the clear acceleration in the pace of economic activity for Rhode Island as 2012 came to an end, this does not come as much of a surprise. The October CCI results will be quite interesting, as they will reflect not only the fiscal drag from Washington, but the effects of the government shutdown as well.
In light of these uncertainties moving
forward, it is informative to examine the performance of the leading
indicators contained in the CCI. For September, three of the four leading
indicators improved in spite of difficult “comps” from a year ago. The only
leading indicator that failed to improve, US Consumer Sentiment, fell
only slightly (by 0.3%), but this relatively small decline occurred relative to
a rise of over 33 percent last September.
So, as we move into the last quarter of
2013, our state’s momentum may be losing a step or two, but a substantial
amount of momentum remains, as attested to by the performances of both the
leading indicators contained in the CCI and several of its non-leading
indicators. This means we will just have to wait longer to ultimately return to
where our state’s economy was prior to the Great Recession. Our recent rates of
growth applied to the depressed activity levels Rhode Island fell to will
continue to generate relatively small changes in the actual activity levels.
As stated earlier, three of the CCI’s four
leading indicators improved in September. The uptrend in Single-Unit Permits,
a leading indicator of housing, continues, as we have moved well beyond our
recession trough (note: the September Permits value is an estimate as the
government shutdown has caused a delay in its release until next week). US
Consumer Sentiment failed to improve for the first time since January.
However, it had an extremely difficult “comp” from last September. In spite of
this temporary setback, Sentiment remains in a well-established uptrend
that promises to continue as long as the stock market continues to improve.
The remaining leading
indicators are related to the labor market. The first of these, Employment
Service Jobs, which includes temporary employment, a prerequisite to
overall employment growth, rose by a healthy 3.4 percent in September. Its
decline last month was the first in over a year. Like US Consumer Sentiment,
this one-month problem does not threaten its longer-term uptrend, something
that will be important as we move to the last quarter of this year. New
Claims for Unemployment Insurance, the most timely measure of layoffs,
improved in September, falling by 7.9 percent in spite of a very large decline
last year (-25.1%). At present it has no clear trend, which is potentially
problematic since a trend of rising layoffs would adversely affect other CCI
indicators in coming months. The final leading indicator, Total
Manufacturing Hours, which measures strength in our manufacturing sector,
rose by 1.6%.
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