Lardaro: R.I. in ‘2nd and deeper recession phase’

KINGSTON – “The year 2008 continues to be a nightmare for Rhode Island’s economy,” University of Rhode Island economist Leonard Lardaro wrote today in his monthly report on the state’s economy.

His Current Conditions Index stood at 8 points in March for the third month in a row, matching the all-time low first recorded in April 1991 amid a nationwide recession, defense cutbacks and the Rhode Island banking crisis. The state’s scores this year, Lardaro said, “would make a far better poker hand than a report card on its economic performance. … But, unlike a poker game – where the cards we are dealt are random and determined by the luck of the draw – Rhode Island’s economic woes are largely the result of two decades of ineffective collective economic leadership.”

Only one of the index’s 12 indicators improved in March. The state’s average manufacturing wage grew 3 percent compared with a year ago, “reflecting some combination of skill shortages in that sector and a contraction of ‘low end’ of manufacturing in this state,” Lardaro said.

“In March,” he added, “our labor market clearly became unhinged.”

Nonfarm payroll employment in Rhode Island fell by 10,100 jobs, or 2 percent, compared with March 2007. The state’s unemployment rate rose to 6.1 percent, “a full percentage above the national rate,” and nearly a quarter again Rhode Island’s year-ago level. The state’s labor force continued to shrink, falling 0.7 percent compared with a year ago, as more people gave up on looking for work. “Had those persons not dropped out of the labor force, “Lardaro said, “my educated guess is that Rhode Island’s unemployment rate would have been much closer to 6.5 percent than its current level.”

Private service-producing employment fell 1.2 percent compared with a year ago, while the manufacturing work week and total manufacturing employment both fell, yielding a 6.9 percent year-over-year decline in total manufacturing hours.

But, he said, “the disappointing performances don’t end there.” In total, half of the CCI indicators [worsened] at double-digit rates.”

U.S. consumer sentiment, measured by the Reuters/University of Michigan Surveys of Consumers, fell 21.3 percent compared with a year ago. Meanwhile, retail sales continued to decline, falling 3.6 percent compared with March 2007.

Employment services jobs, a leading indicator for the labor market, fell 16.9 percent. New claims for unemployment benefits, an indicator of layoffs, rose 11.9 percent compared with March 2007, while benefit exhaustions, a measure of long-term unemployment, rose 36 percent.

Single-unit building permits fell 60.6 percent compared with a year ago, to only 55 permits statewide in March. Yet, Lardaro said, “while this might sound disastrous, so little new-home construction will help us reduce our state’s inventory of unsold homes, which can be expected to rise as the result of upcoming foreclosures.”

The bottom line, Lardaro said, is that, “based on our state’s 2008 economic performance, we have entered a second and deeper recession phase, where prior economic activity levels will continue to become ever-more unattainable. Having to eliminate large budget deficits amid all this weakness will prove to be far more difficult than almost anyone here has imagined.”

The Current Conditions Index, created by University of Rhode Island economist Leonard Lardaro, measures the strength of the state’s economic climate; values above 50 indicate the economy is expanding. Additional information, including historic data, is available at members.cox.net/lardaro/current.