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:

 May was a potential breakout month for Rhode Island. The Current Conditions Index, which measures cyclical economic momentum, increased for the third consecutive month, reaching a value of 75 in May. The CCI has now exceeded its year-earlier value for four of the five months thus far in 2024. Furthermore, many of the CCI indicators turned in impressive performances this month while sustaining their uptrends. At long last, Rhode Island’s economy may well be moving out of “first gear.”

For May, the CCI’s value of 75 indicates that nine of the twelve CCI indicators improved relative to a year ago. Ironically, the three that failed to improve were all related to unemployment. 

Overall, four of the five leading indicators contained in the CCI improved, although all had relatively easy comps from last May. In spite of this, one of the leading labor market indicators, Employment Service Jobs, a category that includes temps, improved for the first time since September 2022. Were this to end its several-year downtrend, that would be an important change for Rhode Island. Also noteworthy were labor market trends related to the household survey. Rhode Island’s Labor Force continues to improve on both a monthly and yearly basis. Along with this, the labor force participation rate (percentage of the population in the labor force) has risen for the last five months, reaching 64.9 percent in May, and the employment rate (percentage of the population that is employed) increased again, rising to 62.1 percent. Make no mistake: These are critical developments, making Rhode Island’s economy normalize, not relative to pre-pandemic, but to the trends in the national economy. When was the last time that happened?

Many fret about the fact that our Unemployment Rate is significantly higher than it was a year ago and it is now above 4 percent. However, this is a positive and expected outcome, given our rising labor force and participation rates. I recommend that everyone ignore the jobless rates recorded over the past few years that were below 4 percent. They were a byproduct of low labor force participation and a Labor Force that wasn’t moving in the direction we needed it to. Let me reiterate: Rhode Island’s official Unemployment Rate has now officially (in my mind) shed its status as being a naïve rate. Even more surprisingly, for May, the Participation-Adjusted Unemployment Rate fell to 4.0 percent, moving slightly below the official rate, as it focuses more on the employment rate than does the official rate.  

Looking at this month’s CCI indicator performances, nine of the twelve CCI indicators improved relative to their values a year ago and many had solid advances. Total Manufacturing Hours again rose sharply (+6.6%) in May, the result of both a longer workweek and greater employment. Along with that, the Manufacturing Wage once again increased by more than 6 percent compared to last May, the latest in a string of increases that have exceeded the rate of inflation since last July. Interestingly, while at the national level, manufacturing has been weakening, the opposite has been the case here. Government Employment, which has been a consistent performer, registered another increase, its ninth since last September. Private Service-Producing Employment, which reflects non-government, non-goods-producing employment,

improved every month last year and in May (+1.1%). Its growth rate, which has been slowing since December, decelerated again in May. US Consumer Sentiment sustained its recent strength, rising by double-digit rate (+17.2%). What had been a consistent area of weakness related to housing, Single-Unit Permits, or new home construction, rose for the third time in five months. Hopefully its recent improvements along with falling interest rates will end its well-established downtrend. Employment Service Jobs, which includes “temps,” and is a leading economic indicator of job gains, had fallen on a yearly basis every month since October of 2018, but rose in May (+0.9%). Finally, the Labor Force rose by 2.8 percent compared to a year ago in May.

The bad news, and there wasn’t that much, dealt with unemployment. New Claims, reflective of layoffs, and a leading labor market indicator, has only improved for two of the last sixteen months. In May, it rose by 7.3 percent, ironically a lesser rate of deterioration than had been true for a while. While payroll employment continues to rise, this might be signaling the potential for some slowing in future job gains. At the other end of the labor market spectrum, Benefit Exhaustions, which reflects longer-term unemployment, surged last April and had increased at double-digit rates every month since then, rose by another 7.8 percent in May, but this was a much slower rate or increase than had been the case for over a year.  

So, in summary, the data for April is the best we have seen in a while as a number of key variables that define our state’s cyclical economic momentum are showing strength and (hopefully) sustainable future trends. While there were a few “dark clouds,” hopefully they will not be enough to derail this momentum for some time. Still, our future economic momentum rests largely with the national economy.