BACKGROUND

The Current Conditions Index (CCI) is a monthly indicator that details the present state of the Rhode Island economy by following the behavior of twelve key economic indicators pertaining to housing, retail sales, fiscal pressures, the employment situation, and labor supply:

·        Government Employment

·        Employment Services Jobs*

·        Retail Sales

·        University of Michigan US Consumer Sentiment Index**

·        Single-Unit Housing Permits

·        Private Service-Producing Employment***

·        Manufacturing Man-hours****

·        Average Hourly Manufacturing Wage

·        Seasonally Adjusted Unemployment Rate

·        Resident Labor Force

·        New Initial Claims for Unemployment Insurance

·        Unemployment Insurance Regular Benefit Exhaustions

The CCI ranges from 0, when no indicators improve compared to year-earlier levels, to 100, when all twelve show improvement. Values above 50, the "neutral" value, indicate that the Rhode Island economy is expanding, while values below 50 are indicative of contraction. Prior to "The Great Recession" that began in June of 2007, the CCI had never attained a value of 0, indicating that no indicators improved relative to year-earlier values. This changed in 2008, when the CCI fell to 0 on three occasions, and in 2009, when another value of 0 was recorded. Prior to this, the low for the CCI had been 8, which occurred for only a single month on several occasions. For almost all of 2008, the CCI recorded values of 8. The CCI attained its maximum value of 100 on several occasions, for almost all of 1984 and once in 1986. Note that these values occurred exclusively when Rhode Island was still a manufacturing-based economy.

* Up until February 2006, the CCI used Help Wanted Advertising for Providence, RI as one of its indicators (and toward the end of its use an econometric adjustment was required). This indicator replaces Help Wanted Advertising.
** Prior to the October 2001 report, the CCI used Existing Home Sales in Rhode Island. This indicator replaces Existing Home Sales. 
*** Prior to the January 2003 report, Miscellaneous Service Employment, a major category of the SIC codes, was used. Now that NAICS replaces the SIC codes, the current indicator was chosen to replace Miscellaneous Service Employment.
****Beginning with the November 2005 report, Manufacturing Man-hours will be referred to as Total Manufacturing Hours.

THE CCI THIS MONTH

MONTHLY HIGHLIGHTS:

As we move closer to the end of the year, it is becoming increasingly apparent that Rhode Island’s economic momentum is fading. While there have been significant improvements in key economic indicators this year on a yearly basis, several of which allowed us to surpass pre-pandemic levels, a trend of deteriorating monthly values emerged at the end of the summer for a number of these indicators. The concern this raises, which is probably obvious, is that should these monthly changes continue to falter, they will inevitably translate into yearly declines, which would then be the worst of both worlds.

The list of variables fitting this description is unfortunately, long and getting even longer. Key among these is our Labor Force, which I have commented on extensively in the past few months and resident employment (the number of employed RI residents, either in state or out of state). Also, both the labor force participation and employment rates have fallen since August. Their declines shed a negative light on the constancy of our state’s Unemployment Rate over the last three months.

The Current Conditions Index for November remained at 67, well below its value of 83 in June, as eight of the twelve CCI indicators improved. From an annual perspective, it appears that the second quarter growth spurt has ended and that we are transitioning to a more sustainable (for us) level of activity, especially since CCI values this year have exceeded those of last year with the exception of only one month (March). Were improvements in both yearly and monthly values occurring, that would be the correct interpretation. However, the deterioration in monthly values indicates that at this point in time, this might be too optimistic of an interpretation (see next page).

Looking “in the rearview mirror” does provide us with a favorable view. But it is what the future holds that is most relevant. So, while the CCI based on yearly changes remains in the expansion range (beyond 50) when calculated on a monthly basis, quite the opposite is true. The monthly CCI has remained in the contraction range for every month since July.  

Overall, eight of the twelve CCI indicators improved in November relative to a year ago, as did four of its five leading indicators. Most notable among these continues to be the sustained yearly uptrend in our state’s Labor Force, which rose by 2.2 percent (although it fell on a monthly basis). While manufacturing strength has persisted here for months, some weakness is beginning to emerge. Overall, the numbers look good: Total Manufacturing Hours rose by an impressive 4.6 percent relative to a year ago. However, this improvement was largely based on increased weekly hours, as employment in both durable and non-durable goods has remained virtually unchanged over the past three months. This potentially signifies that a substitution of hours for employment might be beginning. Furthermore, the Manufacturing Wage fell on a yearly basis for the second month (-1.5%) after declining on a monthly basis for a fourth month.

At least Retail Sales, a key indicator of our state’s economic health, rose by 4.8 percent in November. Should this weaken, that’s when we should really begin to worry. And Employment Service Jobs which includes “temps,” and is a leading labor market indicator, grew at almost a 4 percent annual rate, although it too has fallen monthly for two months. Along with this, the “flip side” of potential hiring, layoffs, in terms of New Claims, improved in November following two months of increases. Layoffs clearly do not have a well-established trend in either direction at this point. 

Government Employment, a consistent performer, registered another increase, 2.1 percent, its fifteenth since last September. Private Service-Producing Employment, which reflects non-government, non-goods-producing employment that improved every month last year, saw its growth remain at 2.0 percent in November. US Consumer Sentiment improved sharply again, rising at a double-digit rate. What had been a consistent area of improvement of late related to housing, Single-Unit Permits, or new home construction, fell this month (-4.9%), its first yearly decline since March. Ongoing concerns with longer-term unemployment continued in November as Benefit Exhaustions, which reflects long-term unemployment, rose by 45.2 percent, its sixth consecutive double-digit increase.   

As Rhode Island’s economy appears to be losing some of its momentum, along come large budget deficits that promise to slow economic momentum further. Talk about timing!