| In
the first half of 2003, Rhode Island flirted with, but ultimately
avoided a double-dip recession. Things picked up noticeably during the
second half of 2003 and into the first quarter of 2004. That’s where
the party apparently ended. Our economy slowed after February. Payroll
employment in July was virtually identical to its value in January of
this year. And, our unemployment rate has not matched or exceeded the
national rate for the last four months. At present, Rhode Island’s
economy is moving sideways. What lies ahead?
First, the good news. The national economy
will move out of its recent “soft patch” by the end of the third
quarter, returning to more solid growth, albeit at rates below what
was predicted early this year. As this occurs, Rhode Island’s economy
will grow more rapidly as well. While Rhode Island will still retain
the “excess baggage” of problematic job growth and above-national
unemployment rates, these will become less dominant as the other parts
of our economy improve. As was true in the 1990s, some of the
reductions our state’s unemployment rate will result from our
residents securing jobs in Massachusetts and Connecticut. And, with
new firms being created, it will be difficult to track all of the
payroll employment jobs that will be occurring. But the risk of a
severe backslide in the second half is not that great, unless the
major risk(s) to this forecast occur: terrorism acts and/or dramatic
rises in energy costs.
This takes us to the bad news. I think that
much of what the media has been focusing on, and some government
statistics are missing, is the severity of the “pinch” being felt by
so many nationally and in Rhode Island. Yes, gasoline prices have
risen and remain high. But it’s worse than that. I don’t have to tell
anyone reading this article how often “price shock” occurs – when we
gas up our cars, when we go grocery shopping, when we pay our auto and
health insurance bills, and as we plan for how much heating will cost
this winter.
Perhaps the most “unsung” risk for Rhode
Islanders is the last item – how cold of a winter this will be. If we
have a very severe winter, oil prices will be pushed up sharply, which
either will reverse earlier declines if oil prices should weaken in
the short-term, or could push oil into the $50-$55 per barrel range if
no short-term relief occurs. I view $65 per barrel of oil as the point
at which the “R” word (recession) becomes a real possibility. And,
given that Rhode Island’s economy is currently moving sideways, we
have very little margin for error. In this worst case scenario, Rhode
Island might possibly experience a mild recession if the nation only
flirts with recession.
Let’s be optimistic. Oddly, though, that means
cheering for a warm winter and falling oil prices. |
