Ocean State not as bad off as employment data suggest

COURTESTY LEONARD LARDARO
STAYING ABOVE WATER: Leonard Lardaro, a URI economist, says that Rhode Island is not on the verge of a double-dip recession, despite what the official data says.
COURTESTY LEONARD LARDARO STAYING ABOVE WATER: Leonard Lardaro, a URI economist, says that Rhode Island is not on the verge of a double-dip recession, despite what the official data says.

When University of Rhode Island economist Leonard Lardaro began working as a forecaster for the New England Economic Partnership in 1991, he realized the Ocean State was not getting the kind of detailed economic analysis happening elsewhere. Seeing an opportunity to fill that gap, Lardaro developed his Current Conditions Index for Rhode Island that 11 years later is relied on to provide a barometer of the state’s economic health.
As the state has struggled to recover from the recession, people have looked to the index to find out how bad it really is here and whether the state has hit a feared double dip. February employment figures placed Rhode Island teetering on the brink of another downturn, but Lardaro held off on calling it a double dip and later learned the labor numbers may have been distorted.
Lardaro discusses why unemployment figures in Rhode Island have gone out of whack and where the state really stands.

PBN: You’ve said this is not only a difficult time for Rhode Island economically but an unusually difficult time to figure out exactly what is happening economically in the state. What is causing the confusion?
LARDARO: Right now the labor-market data that has been released by R.I. Department of Labor and Training has been inaccurate – they even admitted this during the revenue estimating and caseload conference. Right now if you look at the released data, Rhode Island has had declines in payroll employment for about eight of the last nine months and just about every labor-market indicator except for the manufacturing ones are abysmal. … After my March report, I was notified by DLT that when they have incorporated the most recent tax data, Rhode Island hasn’t had that many declines and employment has really been going up.

PBN: Data revisions are normal, but they are also changing, right? LARDARO: The state has always done the numbers and they would use their local expertise and begin their projections for the monthly data based on the third quarter of the prior year. It is called re-benchmarking: they re-benchmark to a more recent, known data point. As a cost-saving measure, the U.S. Bureau of Labor Statistics is taking this over from all 50 states, against the protestations of all 50 states. What they are going to do is start their monthly projections from the end of the second quarter of the prior year and not the third. It doesn’t sound like a big deal, but it can be. The farther you forecast from a known data point, the more likely you are to run into error. When R.I. DLT looked at what the third quarter had shown, Rhode Island had started pulling out of the funk it was in and that led them to say this is what we think is happening, things are going up. So when U.S. Bureau of Labor Statistics starts doing the numbers next February, they will start their projections from an earlier time period. And Rhode Island is an extremely idiosyncratic state.

PBN: So right now the employment numbers look worse than they probably are and next year they will probably start looking rosier than they should be?
LARDARO: Yes. And a perfect example is [the federal government] has already taken over calculating the manufacturing-wage rate. If you take the April growth rate for the Rhode Island wage of about 18 percent and take the square root, that would still be twice the U.S. growth rate – it is ridiculous. All of a sudden our manufacturing wage went from the $15 range to about $19 in a short period of time. I don’t believe that for one second. … I get the feeling they are plugging into the national models to try to figure out what Rhode Island would be and we have always been an outlier. So we are going from one extreme to another and it puts us in a bind over whether to believe the numbers. The data will likely continue to be too pessimistic until next February, and then you will see a dramatic turnaround.

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PBN: So with all that said, where are we now?
LARDARO: First and foremost, Rhode Island is not on the verge of a double-dip recession, despite what the official data says. Secondly, Rhode Island has not had approximately nine consecutive months of year-over-year declines in employment. My models say employment has been going up for about seven months, although not by a lot. If employment is not going down, but going up, that will impact other areas, namely the unemployment rate. I don’t agree that our unemployment rate in April rose to 11.2 percent. It is somewhere in the 10 to 11 percent range. Happy days are not here again, but we are not ready to fall off a cliff. But this doesn’t let us off the hook. Rhode Island still has a number of structural problems it needs to deal with. We should have reinvented ourselves in 2008, but we didn’t.

PBN: What areas of the economy are really moving right now one way or another?
LARDARO: Retail is doing very well and that was partly by our own momentum and Rhode Islanders who work in other states bringing their money home. In housing, new-home construction has been really beaten down throughout the crisis and remains at such a low level, around 55 permits for the entire state each month. Before the crisis it was 2.5 times that amount. … The other area of surprising strength is manufacturing, which parallels the national economy. I didn’t expect that. … The workweek has been going up. … That is an indicator that manufacturing output is strengthening, which is reflected in exports. •

INTERVIEW
Leonard Lardaro
POSITION: Professor of economics at the University of Rhode Island
BACKGROUND: A URI graduate, Lardaro has spent a career in economics that brought him back to the Ocean State in 1981. In 1991, Lardaro worked on the New England Economic Partnership as a forecaster and later started his economic-conditions index for the state, which is now featured on his own blog and website.
EDUCATION: Bachelor’s in economics from the University of Rhode Island, 1973; Ph.D. in economics from Indiana University, 1979
FIRST JOB: Golf caddy
RESIDENCE: South Kingstown
AGE: 61

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