Current Conditions Index: September 2014

This is an abbreviated version of the September Current Conditions Index report. The complete report, which includes tables, along with past reports, can be found on my website: www.llardaro.com .
 

 -----------------------------------------------------

 

Rhode Island’s economy is on a tear, kind of. After stumbling somewhat in the second quarter of 2014, the pace of this recovery picked up noticeably in the third quarter, as the Current Conditions Index managed to reach and sustain a value of 75 for all three months of that quarter. This performance is significant for a couple of reasons. First, and foremost, the August CCI exceeded its year-earlier value, something we hadn’t witnessed in twelve months. Second, the string of 75 values were the highest recorded in 2014, outpacing earlier-year values of 50, 58, and 67. The gray area, however, is that September’s CCI value only matched its value from last September, failing to extend the string of yearly improvements. But this is Rhode Island, where nothing economic is ever all that easy. So let me modify my recent criterion, actually soften it a bit, to apply to Rhode Island’s current situation: we have now matched or exceeded year-earlier CCI values for two consecutive months.   

Our transition from a period where the current recovery was becoming less broadly based into one where increased momentum is being sustained thus continues. That is a big deal, especially for this state. So, as we move into the fourth quarter of 2014, there is a fairly high probability that our state’s economic performance is not decoupling from the accelerating national economy after all.

In September, four of the five leading indicators contained within the Current Conditions Index improved. The sole leading indicator that failed to improve was Total Manufacturing Hours, which measures strength in our manufacturing sector. This indicator fell for the first time in over a year (-0.3%), following slower growth since June. While manufacturing employment rose, the length of the workweek fell slightly. As has been true for some time now, the Manufacturing Wage declined, for a seventh consecutive time in September, by a bizarre and difficult to believe 6.6 percent. Were the BLS to conduct a direct survey of the Manufacturing Wage here my guess is that its actual level would be well below their inflated estimates over the past few years.

Single-Unit Permits, which reflects new home construction, had declined in August by 8.7 percent (year-over-year) after a string of strong performances. This volatile indicator rose by a mind-boggling 36.7 percent in September relative to its value last year. So, while the momentum derived from Rhode Island’s goods-producing sector may be moderating, weakness in manufacturing is being at least partially offset by strength in housing.

New Claims, which is a leading labor market indicator, fell by 7.4 percent in September, breaking a string of two consecutive double-digit declines. This indicator has now improved for six of the past seven months, a very healthy sign as we move into the fourth quarter. Employment Service Jobs, which includes temporary employment, and is a prerequisite to employment growth, rose for the third consecutive month (+2.3%). Its rate of growth has been increasing over this three-month stretch, another positive sign as we move forward. Finally, US Consumer Sentiment rose in September (+8.7%), its second increase following a string of three consecutive declines. 

 

Current Conditions Index: August 2014

This is an abbreviated version of the August Current Conditions Index report. The complete report, which includes tables, along with past reports, can be found on my website: www.llardaro.com .
 

 -----------------------------------------------------

August will turn out to be the most significant month thus far in 2014 for two reasons. First, in August, Rhode Island was able to sustain the improved momentum we witnessed in July, as the Current Conditions Index matched its July value of 75, which had been its highest thus far in 2014. Second, and most importantly, August brought with it the one “signal” we were sorely in need of this year: after a string of twelve consecutive months where the CCI had failed to beat its year-earlier values, at long last, the CCI for August of this year exceeded its value from last August. So, the major negative related to consecutive disappointments in our state’s economic performance relative to a year ago has ended at twelve. The implication of both of these factors is critical: we appear to have transitioned from a period where the current recovery was becoming less broadly based into one where economic momentum is increasing. That, as the saying goes, is a big deal!

Along with this good news it is important to keep in mind the central role that our goods-producing sector has played: both housing and manufacturing have continued to move well beyond their cyclical troughs, helping us to sustain our fluctuating cyclical momentum. So, as Rhode Island moves farther into the second half of 2014, our state’s economic performance might not have decoupled from the accelerating national economy after all. Stay tuned!

In August, four of the five leading indicators contained within the Current Conditions Index improved. The one leading indicator that failed to improve, Single-Unit Permits, which reflects new home construction, had previously turned in a string of strong performances. This volatile indicator declined by 8.6 percent in August relative to its value last year.

Total Manufacturing Hours, which measures strength in our manufacturing sector, rose once again in August (+1.1%), but August growth was substantially slower than it was in July, as manufacturing employment rose but the length of the workweek fell slightly. As has been true for some time now, the Manufacturing Wage declined, for a sixth consecutive time in August, by a difficult to believe 4.6 percent.

New Claims, which is a leading labor market indicator, fell at a double-digit rate (-20.5%) for the second consecutive month, raising the likelihood that this indicator will resume a downward trend. Employment Service Jobs, which includes temporary employment, and is a prerequisite to employment growth, rose for the second time since last November (+2.2%), growing at almost twice the July rate.  Finally, US Consumer Sentiment rose in August (+0.2%), ending a string of three consecutive declines.

Current Conditions Index: July 2014

This is an abbreviated version of the July Current Conditions Index report. The complete report, which includes tables, along with past reports, can be found on my website: www.llardaro.com .
 

 -----------------------------------------------------

 

As Rhode Island moves into the third quarter, it appears to have left the disappointing performance from the prior quarter behind - at least for now. The July Current Conditions Index jumped from its neutral value of 50 in June all the way to 75 for July, as nine of the twelve CCI indicators improved. Not only does this improvement come as welcome news for Rhode Island, the increase from June was somewhat expected. I noted last month that the two CCI indicators whose performance put a “nail in the coffin” for June’s CCI, Benefit Exhaustions and New Claims, had displayed bizarre increases that month that were not explainable by any of the obvious undercurrents in our state’s economy. As expected (with my fingers crossed), both went from double-digit rises last month (remember we want both of these to decline) to double-digit declines. So, while it is still accurate at this point to say that Rhode Island’s overall performance in 2014 has been  disappointing, the July CCI provides us with a potential glimmer of hope that perhaps things here are beginning to strengthen after all as we move through the second half of 2014. Before we get carried away, it must be noted that this July’s CCI reading of 75, while a marked improvement over June, was still below the reading for last July, marking the twelfth consecutive month where the CCI has failed to beat its year-earlier value. I can certainly think of happier one-year anniversaries! So, as Rhode Island moves into the last half of 2014 the most pressing issue continues to be whether Rhode Island’s economic performance will ultimately decouple from the accelerating national economy.

In July, four of the five leading indicators contained within the Current Conditions Index improved, most doing so at healthy rates. Single-Unit Permits, which reflect new home construction, turned in a very strong performance for July, rising by 26.3 percent relative to its value last July. Total Manufacturing Hours, which measures strength in our manufacturing sector, rose sharply again in June (+3.6%), as both the length of the workweek and manufacturing employment displayed significant increases. Oddly, in spite of such strong and sustained manufacturing momentum, the Manufacturing Wage actually declined for a fifth consecutive time in July, by 4.3 percent.

Two of the leading indicators that failed to improve last month did considerably better in July. New Claims, which is a leading labor market indicator, fell at a double-digit rate (-17.2%) after inexplicably rising at a double-digit rate in June, making it more likely that this indicator will resume a downtrend. Employment Service Jobs, which includes temporary employment, and is a prerequisite to employment growth, rose for the first time since last November (+1.2%), halting a streak of seven consecutive declines. In spite of this good news for July, I continue to view changes in this indicator somewhat suspiciously. The sole leading indicator that failed to improve this month was US Consumer Sentiment, which declined for the third consecutive month (-4.3%) following a string of five consecutive increases.

Retail Sales remained strong in July, rising by 3.3 percent compared to a year ago. This indicator has now improved for seven of the last nine months. Private Service-Producing Employment rose by 2.1 percent in July, its strongest rate of growth in over a year. As has been the case for quite some time now, Government Employment fell once again, declining in July by 0.7 percent versus a year ago. Benefit Exhaustions, which reflects longer-term unemployment, reversed its strange double-digit increase of last month, falling by 30.2 percent relative to a year ago. July was the third double-digit improvement for this indicator in the last four months.