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:

Rhode Island’s economy began the fourth quarter on a somewhat cautious note. Rhode Island’s economy began the fourth quarter on a somewhat cautious note. While a large portion of recent momentum remains based on yearly comparisons, there are signs of weakening when looking at the same indicators on a monthly basis. Overall, for October Rhode Island’s economy turned in a mixed economic performance, although some strong elements remain.

The Current Conditions Index for October fell to 67 from its prior values of 75 in August and September as eight of the twelve CCI indicators improved. It appears the growth spurt from the second quarter has ended and that we are transitioning to a more sustainable (for us) level of economic momentum. In terms of perspective, however, it is important to keep in mind that CCI values this year have exceeded those of last year with the exception of only one month (March), so Rhode Island’s economy has continued to move beyond levels a year ago. What might be happening, though, is the early stages of a trend where year-over-year improvement continues while month-to-month growth slows. For example, while the CCI based on yearly changes remains in the expansion range (beyond 50), the same is not true when it is calculated on a monthly basis. The Monthly CCI has failed to exceed 50 for all but one of the past six months. Should this trend continue, and that is not at all certain, then eventually yearly improvement will begin to slow and  possibly reverse. At this point we are far from that eventuality, but it is something to keep in mind. 

Overall, eight of the twelve indicators contained in the CCI improved in October relative to a year ago. Most notable among these continues to be the sustained uptrend in our state’s Labor Force. This month our state’s Labor Force rose by 2.5 percent, below the 3 percent rate where it had been since May. However, on a monthly basis, its level has been declining for the last three months. Along with this were slight declines in the labor force participation rate over the past two months, although it remained at 65 percent.

Keep in mind that the ongoing Labor Force improvements make recent increases in our state’s Unemployment Rate (now at 4.6%) less negative than they might appear. Personally, I never believed that our state’s Unemployment Rate was ever below 4 percent (statistical artifact of low participation rates).

Another notable trend concerns our manufacturing sector. Total Manufacturing Hours, a proxy for manufacturing output, rose by 5.6 percent relative to a year ago, seemingly a great number! What is potentially troubling, however, is that momentum existed only with non-durable goods portion. The cyclically sensitive durable goods sector saw no change in employment and declines in both hours worked and the hourly wage. This is potentially concerning, as it is a critical part of Rhode Island’s cyclical sensitivity. Interestingly, the Manufacturing Wage actually fell in October (-1.5%) its first decline since January of 2020, largely the result of durable goods weakness. 

Finally, Retail Sales, a key indicator of Rhode Island’s economic health, rose by 2.7 percent in October, perhaps related to a shorter holiday shopping season (by 5 days), but this is coming off a weak performance last month (+1.1%).

The bright spot has transitioned to Employment Service Jobs which includes “temps,” and is a leading labor market indicator. Its yearly growth has approximated 5 percent for the last two months. But along with this, is the “flip side” of potential hiring, layoffs, in terms of New Claims, which failed to improve again in October, yet another mixed signal from this month’s data.

Government Employment, a consistent performer, registered another increase, 2.3 percent, its fourteenth since last September. Private Service-Producing Employment, which reflects non-government, non-goods producing employment that improved every month last year, saw its growth accelerate to 1.9 percent in October. US Consumer Sentiment improved sharply again, rising at a double-digit rate in October. What had been a consistent area of weakness related to housing, Single-Unit Permits, or new home construction, surged by 20.6 percent relative to last October, its eighth increase in nine months. My ongoing concerns with longer-term unemployment continued in October. Benefit Exhaustions, which reflects long-term unemployment, has now increased at double-digit rates every month since last April, rising by 11.7 percent in October. 

So, while my overall assessment of Rhode Island’s economic performance remains upbeat, several areas and trends need to be monitored closely in the coming months. 

While a large portion of recent momentum remains based on yearly comparisons, there are signs of weakening when looking at the same indicators on a monthly basis. Overall, for October Rhode Island’s economy turned in a mixed economic performance, although some strong elements remain.

The Current Conditions Index for October fell to 67 from its prior values of 75 in August and September as eight of the twelve CCI indicators improved. It appears the growth spurt from the second quarter has ended and that we are transitioning to a more sustainable (for us) level of economic momentum. In terms of perspective, however, it is important to keep in mind that CCI values this year have exceeded those of last year with the exception of only one month (March), so Rhode Island’s economy has continued to move beyond levels a year ago. What might be happening, though, is the early stages of a trend where year-over-year improvement continues while month-to-month growth slows. For example, while the CCI based on yearly changes remains in the expansion range (beyond 50), the same is not true when it is calculated on a monthly basis. The Monthly CCI has failed to exceed 50 for all but one of the past six months. Should this trend continue, and that is not at all certain, then eventually yearly improvement will begin to slow and possibly reverse. At this point we are far from that eventuality, but it is something to keep in mind. 

Overall, eight of the twelve indicators contained in the CCI improved in October relative to a year ago. Most notable among these continues to be the sustained uptrend in our state’s Labor Force. This month our state’s Labor Force rose by 2.5 percent, below the 3 percent rate where it had been since May. However, on a monthly basis, its level has been declining for the last three months. Along with this were slight declines in the labor force participation rate over the past two months, although it remained at 65 percent.

Keep in mind that the ongoing Labor Force improvements make recent increases in our state’s Unemployment Rate (now at 4.6%) less negative than they might appear. Personally, I never believed that our state’s Unemployment Rate was ever below 4 percent (statistical artifact of low participation rates).

Another notable trend concerns our manufacturing sector. Total Manufacturing Hours, a proxy for manufacturing output, rose by 5.6 percent relative to a year ago, seemingly a great number! What is potentially troubling, however, is that momentum existed only with non-durable goods portion. The cyclically sensitive durable goods sector saw no change in employment and declines in both hours worked and the hourly wage. This is potentially concerning, as it is a critical part of Rhode Island’s cyclical sensitivity. Interestingly, the Manufacturing Wage actually fell in October (-1.5%) its first decline since January of 2020, largely the result of durable goods weakness. 

Finally, Retail Sales, a key indicator of Rhode Island’s economic health, rose by 2.7 percent in October, perhaps related to a shorter holiday shopping season (by 5 days), but this is coming off a weak performance last month (+1.1%).

The bright spot has transitioned to Employment Service Jobs which includes “temps,” and is a leading labor market indicator. Its yearly growth has approximated 5 percent for the last two months. But along with this, is the “flip side” of potential hiring, layoffs, in terms of New Claims, which failed to improve again in October, yet another mixed signal from this month’s data.

Government Employment, a consistent performer, registered another increase, 2.3 percent, its fourteenth since last September. Private Service-Producing Employment, which reflects non-government, non-goods producing employment that improved every month last year, saw its growth accelerate to 1.9 percent in October. US Consumer Sentiment improved sharply again, rising at a double-digit rate in October. What had been a consistent area of weakness related to housing, Single-Unit Permits, or new home construction, surged by 20.6 percent relative to last October, its eighth increase in nine months. My ongoing concerns with longer-term unemployment continued in October. Benefit Exhaustions, which reflects long-term unemployment, has now increased at double-digit rates every month since last April, rising by 11.7 percent in October. 

So, while my overall assessment of Rhode Island’s economic performance remains upbeat, several areas and trends need to be monitored closely in the coming months.