Current Conditions Index: February 2011

The data for Rhode Island look so much better based on the recent revisions that I felt it was finally time for me to produce my monthly report in color. So, in light of this, there are three noteworthy things that I can report this month. First, from this point forward, all of my monthly reports will be in color. Second, the February value of the Current Conditions Index, 67, was actually somewhat of a disappointment compared to the (now revised) values in the second half of 2010. On numerous occasions over the past few years, I wondered if and when I might ever be able to label a value like 67 a disappointment. Happily, that day has finally arrived! Finally, based on the revised data and Current Conditions Index values, Rhode Island’s current recovery has now reached the one year mark. Apparently time really flies when you don’t realize you’re having a good time!

The February Current Conditions Index value, 67, means that eight of the 12 indicators improved compared to their values one year ago. Particularly noteworthy this month was the fact that several indicators improved in spite of very strong “comps” last year. One indicator, Single-Unit Permits, fell partly because its comp from last February reflected a growth rate of 190 percent. But 26 permits for the entire state in February is hardly something to build a recovery on.

 The star performer among all the CCI indicators continues to be Employment Service Jobs. Not only has that indicator improved for the last 15 consecutive months, it did so this month (+1.3%) on top of a 7.4 percent gain one year ago. Recall, we had thought from the earlier data that this indicator had not improved for quite a while. So, such a strong performance from a leading labor market indicator is potentially very good news moving forward.

The other improving indicators generally reflected very positive momentum. US Consumer Sentiment rose by 5.4 percent, quite an improvement from January. Private Service-Producing Employment increased by 1.0 percent, its eleventh consecutive improvement. Manufacturing turned in its most impressive performance in quite a while. Total Manufacturing Hours rose by 5.2 percent, its ninth improvement in the last ten months, as both the workweek and employment rose. Along with this was a very strong increase in the Manufacturing Wage (+3.8%). So, Rhode Island’s manufacturing continues to mirror the national trend. Our Unemployment Rate fell again, from 11.8 percent one year ago to 11.2 percent this month. Unfortunately, it remains stuck well above ten percent. New Claims, a leading labor market indicator, fell by 6.5 percent in February. It is still unclear whether its trend will become one of declining values each month. Ultimately, its trend will be a critical determinant of future improvements in the Current Condition Index. The last improving indicator, Benefit Exhaustions, which reflects long-term unemployment, declined by 7.8 percent in February.

Retail Sales fell in by 2.4 percent in February, while Government Employment declined by 1.6 percent. Single-Unit Permits, as stated earlier, fell 46.2%. Finally, our Labor Force was unchanged in February, which for calculation purposes, means it also failed to improve.

 

THE BOTTOM LINE:

Think of Current Conditions Index values as the number of “cylinders” that our state’s economy is operating on. For February, we were operating on eight cylinders, a healthy number. So, our state’s cyclical momentum continues to be fairly strong. Our main problem is the persistence of a host of structural weaknesses that offset a good deal of our cyclical gains. If we don’t attack these now, we will have lost a golden opportunity to be proactive.

Recent Newspaper Article

I recently published an article in The Providence Journal Commentary Page, which the editors gave the title "Bad Government Saps R.I. Recovery." While I didn't select the title, I really can't disagree with it. Here is a link to that article on my website.

Why is RI's Unemployment Rate So High?

"The" question for Rhode Island -- how can your state's unemployment rate be so high for no obvious reason? For anyone who has observed (or lived through) the way things are done here, the reasons are obvious and numerous. However, a picture can often say a thousand words. Here's my picture (click to enlarge):

If you want to know why our state's unemployment rate is and has been so high (#4 nationally), you need only consider its flip side -- employment. As my last post showed, employment here peaked in December of 2006 -- a full year before the US! So, a prolonged period of substantial employment declines (8% ultimately), created ever-rising unemployment rates.

Revised Data Employment Picture

As you are probably aware, in February we received the revised (i.e., rebenchmarked) labor market data for Rhode Island. The revised numbers are significantly stronger than the previously released data. Based on these, I was able to move the date for Rhode Island's recovery up to February of 2010 from June of 2010.

In an earlier post, I showed comparative employment changes from January of 2005 for Rhode Island, Connecticut, Massachusetts, the US, and New England. I have re-done that chart using the rebenchmarked data. The chart is given below (click to enlarge):

While this is still very depressing, it is actually an improvement from the prior data. But, RI still saw its employment peak before any of the entities in this chart (revised earlier from January of 2007 to December of 2006), we fell farther and faster than any of the others in the chart. What's the good news? Instead of declining by 10% as we had previously thought, our (precipitous) decline was "only" 8% (leaving us at 92% of peak employment). Now that's good news -- Rhode Island style! In other words, we must consult what I refer to as the "fundamental economic equation for the Rhode Island economy":

LESS BAD = GOOD

Yet another vivid illustration of what I had referred to in a ProJo article a few years ago as Endogenous Mediocrity.

Radio Appearance on WPRO

On Friday (4/1) I was on WPRO's Buddy Cianci Show. We discussed the article I wrote that was published in the Providence Journal that day. Here is a link to that interview. My Monday appearance with Tara and Andrew is apparently not available for download.

Radio Appearance on WPRO

On Friday (3/18) I was on WPRO's Buddy Cianci Show. We discussed the employment/unemployment picture for Rhode Island, my Current Conditions Index, and the state's budget, especially proposed changes to the sales tax. Here is a link to that interview.

Media Coverage of the January 2011 Current Conditions Index

The January 2011 Current Conditions Index (the report is given in the prior post and on my website) received coverage in local media. Here is my discussion of the index on Channel 10's Business Talk with Frank Coletta. The Providence Business News, as always, gave very nice coverage to the report as well.

Current Conditions Index: January 2011

Things are not always as they appear. That certainly pertains to the labor market data prior to the recent rebenchmarking. As I had indicated in the last few reports, I expected the new labor market data to show greater employment levels since historically, revisions are typically higher in the early stages of recoveries and the magnitudes of implied job losses seemed to be too extreme. Let me confess, the magnitudes of the job gains in the newly released data took me by surprise.

What we now see is that Current Conditions Index values for all of 2010 were substantially higher than what the existing data throughout last year had led us to believe. Furthermore, these data point quite clearly to a change in the date for the beginning of Rhode Island’s current recovery from June of 2010 to February.

The data prior to rebenchmarking produced CCI values no higher than 58 for all of last year, with two non-expansionary values in October and November. What we now see is that after February, as the recovery progressed, the CCI exceeded 58 for the remainder of last year, reaching a high of 83 (where 10 of the 12 CCI indicators improved) on three occasions. The primary reason for the higher CCI values concerns two indicators. The first of these, Employment Service Jobs, is a leading labor market indicator that includes “temps.” While we thought it had failed to improve throughout all of 2010, the revised data show that it improved for every month of 2010. The other changing indicator, Private Service-Producing Employment, had only risen a few times last year. The new data show this improving for 10 of the 12 months in 2010. The two of these accounted for most of the revised CCI increases.

So, in light of all the CCI changes, January was another good month for Rhode Island. Its value, 67, while exceeding anything we had witnessed in the prior data, actually showed a decline from the (new) December value of 83. Eight of the twelve CCI indicators improved, with yet another strong performance from our latest “star,” Employment Service Jobs, which rose 2.8 percent.

There were modest gains in the remaining indicators that improved. US Consumer Sentiment rose, but by only 0.2 percent. Private Service-Producing Employment increased by 0.4 percent, its tenth consecutive improvement. Manufacturing turned in a seemingly modest performance, but that is deceiving. Total Manufacturing Hours rose by 0.5 percent, but this was its eighth improvement in the last nine months, something I thought we would never see again. Couple this with a strong increase in the Manufacturing Wage (+4.1%), and Rhode Island manufacturing strength mirrors that of the US. Our Labor Force increased by 0.8 percent, and the revised data show that improvements in our Unemployment Rate were not largely the result of Labor Force declines as the prior data appeared to show. Our Unemployment Rate remained above 11 percent in January, though. Finally, New Claims fell sharply in January (-12.9%).

Retail Sales declined in January (-0.8%), as did Government Employment (-1.3%). Benefit Exhaustions rose (+16.5%), while Single Unit Permits, a very volatile indicator of late, plunged by over 50 percent.

THE BOTTOM LINE:
The revised labor market data and CCI values point to the fact that Rhode Island is actually in a fairly “typical” recovery in terms of cyclical momentum. Our state’s sluggish job growth and stubbornly high jobless rate point to the sad reality that major structural impediments continue to counteract our state’s cyclical momentum, so overall, growth remains unacceptably low. Removing structural impediments should be our job #1.

An Interesting Difference with the US

One of the more interesting statistics I have kept up with over the last few years concerns the labor participation rate for our state. Specifically, this is referred to as the labor force participation rate, defined as the percentage of the working-age population that is in the labor force. Over the past few years, Rhode Island's labor force participation rate has taken on an interesting behavior relative to that of the US. The chart shows this (click to enlarge).

  

Nationally, there is both concern and more than a little bit of confusion concerning how this rate has been changing. It should be apparent from the graph that nationally, the labor force participation rate has continued to decline for some time now, falling to a level of around 64 percent (0.64) in February of this year. There was an excellent discussion of this on CNBC this morning, going into far more detail that I will engage in here.

At this point, the more interesting question in this state is why the participation rate for Rhode Island rose during 2009 while the US rate was declining and the reason why our state's participation rate has largely remained unchanged at very high values. While there are in reality a number of factors responsible for this, I'll give you a hint concerning why RI is so different: 99. See if you can figure out this "puzzle."

Presentation at the RISC Meeting -- February 26,2011

I was invited to speak at the Winter Meeting of the RI Statewide Coalition which was held last Saturday. If you would like to see my presentation, here is the link for part 1. The remainder of the talk (part 2) is on this link.

In future posts, I will lay out  some possible name and motto changes for our state and link back to articles I published in the ProJo that are related to the things I spoke of in the RISC talk.