With many economists projecting a likely national recession by the end of 2020, a local economist is suggesting that Rhode Island could lead the way and go into recession as early as late 2019.
University of Rhode Island Economist Len Lardaro, author of a monthly Current Conditions Index that measures the health of the Rhode Island economy, said that history shows that when there’s an economic downturn Rhode Island is “first in, last out.”
“I expect nationally the economy to go down in recession by the end of 2020, so we (Rhode Island) could have a recession early in 2020, or maybe even late 2019,” Lardaro said.
What is a recession? The Business Dictionary defines a recession as a “period of general economic decline, defined usually as a contraction in the GDP (Gross Domestic Product) for six months (two consecutive quarters) or longer. Marked by high unemployment, stagnant wages, and fall in retail sales, a recession generally does not last longer than one year and is much milder than a depression.”
A majority of economist polled by Reuters News Service believe that trade war tensions between the U.S. and China “has brought forward the next U.S. recession.”
Lardaro said he doesn’t expect this next recession to “be nearly as bad as the last one (the Great Recession).”
Even so, a recession, Lardaro said, means a slowing of the economy, possible layoffs, a further slowdown in manufacturing with tax revenues below expectations. That, he said, could increase the state deficit, mean additional taxes. That same squeeze, he said, will happen with local communities. Those additional taxes, Lardaro said, could bring an increase in property tax, maybe expanding to services.
Lardaro makes his prediction despite his June Current Conditions Index that shows the economy in Rhode Island is continuing to grow. He measures several economic factors and uses 50 as a base. If the index falls below 50 the economy is contracting. Over 50 means expansion.
For June that number was 75, well below June 2018, when it was above 90. Asked if the economy is doing well, Lardaro said “no.”
He noted that while economic growth in June was 2.2 percent that still put Rhode Island behind most states, 46, just slightly better than its ranking of 48 in 2008.
Lardaro said that according to the U.S. Bureau of Economic Analysis, the Rhode Island economy is stuck at a 2015 level.
“We’ve got a lot of work to do, but we’re really not set up to do it,” Lardaro said. “We have a knowledge-based economy, but not knowledge-based approach to economic development, just throwing darts. You have to continue reinventing and improving yourself.”
Lardaro is among a chorus business leaders and observers who believe that among the most critical business issues in Rhode Island is a lack of a skilled workforce.
Lardaro has also been a consistent critic of the state’s approach to economic development, particularly lobbying for the state to develop “in house due diligence,” a group of local economists that would provide what is now provided often by outside consultants. Lardaro believes that “in house due diligence” would be more honest than consultants that, he says, are often hired with the expectation that its results will mirror the desires of those who have hired them.
“This state doesn’t know what crisis mode is,” Lardaro said. “And we should be in crisis mode.”
Nationally, Lardaro said, the “trade war is really capable” of throwing this country into a recession. “Recoveries never die of old age.”