Tuesday, June 11, 2013

Current Conditions Index: April 2013

Below is an abbreviated version of the April 2013 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 


The assessments of Rhode Island's economy provided by the Current Conditions Index over the past few years were recently confirmed by data released from the US Bureau of Economic Analysis (BEA). The CCI showed that Rhode Island's economy was virtually flat in 2011, with an average value of 55 for the entire year (approximately a neutral value), before accelerating in 2012, mainly during the second half of the year. According to the BEA data, real GDP for Rhode Island was unchanged in 2011, then accelerated to a 1.4% rate of growth in 2012. I had referred to this uptick as our “shifting into higher gear” and noted that for Rhode Island, shifting into a higher gear meant moving to third gear, unlike many other states which had already moved to even gears. Sadly, my assessment turned out to be a bit too accurate: the 1.4 percent rate of growth in 2012 for Rhode Island was its highest rate since 2006!

According to the CCI values for 2013, Rhode Island’s economy has slowed a bit from its accelerated pace in late 2012. During the first three months of this year, the CCI had moved between 67 and 83. Although two of the three values weren't particularly strong, all three did manage to beat their year-earlier values (part of the weaker portion of 2012). For April, the CCI slid once again to 67 as only eight of twelve indicators improved. And, for the first time this year, the CCI failed to better its year-earlier value.

Don’t interpret this as indicating that Rhode Island’s economy has substantially weakened, or that it is about to fall off of a cliff. Instead, the pace of economic activity here has leveled off to about what we attained by the end of 2012. That’s not great, but a lot better than virtually anything we have seen since 2006.
In spite of all of this, there was cause for optimism in April’s data. Two leading indicators turned in strong performances, while a few of our recent strong indicators had to overcome strong comps from a year ago. The continued uptrend in Single-Unit Permits, a leading indicator, reflects our having moved past a bottom in new home construction. In spite of recent volatility, permits appear to have settled into a range of about 60+ permits per month. Employment Service Jobs, also a leading indicator, reflects temporary employment, a prerequisite to overall employment growth. This indicator has consistently improved since last April. This April, it rose by a stunning 10.6 percent compared to a year ago. US Consumer Sentiment failed to improve (but barely) for only the second time in over a year, although its comp from a year ago was very difficult to beat.
Rhode Island’s manufacturing sector continued to show strength, as Total Manufacturing Hours rose again (by 1.7%) while our Manufacturing Wage continued to rise at what I believe to be a non-credible rate (4.2%). New Claims for Unemployment Insurance, which reflects layoffs, has begun to rise on a year-over year basis, a very unwelcome development. It has been trending higher on a monthly basis since the third quarter of last year. Private Service-Producing Employment, whose growth has fallen to below one percent of late, appears to be in the process of stabilizing around 350,000.  

While Rhode Island’s Unemployment Rate fell to 8.8 percent in April, this change is not as significant an indicator of Rhode Island’s momentum as many here seem to believe. Not only is the Unemployment Rate a lagging economic indicator, most of its recent monthly declines have coincided with declines in our Labor Force, reflecting the fact that a number of our state’s jobless residents are continuing to drop out of the Labor Force as they are no longer actively searching for employment (part is also related to retirements).
See the full report (with tables) at: http://www.llardaro.com  .