Rhode Island has a better than 50-50 chance of dipping into a recession by the end of this year, according to a leading Rhode Island economist whose monthly index tracks the strength of the state’s economy.
A slowing Rhode Island and national economy, jobs reports that mask true employment, and growing deficits are among indicators that Leonard Lardaro, the University of Rhode Island economist, believe signal a declining Rhode Island and national economy.
“There is better than a 50-50 chance that we will hit a recession by the end of the year,” Lardaro said. “Clearly, the economy at national and state levels is slowing.” He is consistent with many national economists, who believe there is a more than a 40 percent chance the national economy drifts into recession by the November election.
Bankrate’s third quarter economic indictor survey, found 90 percent of experts it polled believe that there are “threats…heavily tilted toward the downside,” with 41 percent believing the U.S. economy will go into recession by the election.
For Rhode Island that’s bad news, according to Lardaro.
“When the national economy hiccups, we stumble and fall,” he said, repeating a phrase he uses often to describe the Rhode Island economy, “FILO, First In (a recession), Last out (of the recession).”
Among the outliers of a prediction of a growing recession threat nationally is Bloomberg Economics, which this month said it is only a 26 percent likelihood that the national economy will go into a recession over the next year. A Bloomberg article said “soaring stock prices, a steeper yield curve and a resilient labor market characterized by the lowest jobless rate in a half century continue to alleviate recession fears. Risks, however, remain centered on corporations’ lack of appetite to spend.”
Meanwhile, Bankrate said “business investment has slowed and confidence is dimming because of geopolitical trade wars and slowing global growth…But how likely is it that a recession is on the horizon, at least between now and the presidential election in November 2020? You can breathe a sigh of relief: Most economists say it’s possible – but not probable, with the average forecast betting on a 41 percent chance.”
Lardaro agrees that a threat of a national recession is slightly below 50 percent.
For Rhode Island, a national slowdown only reinforces what Lardaro sees as a growing threat to the state’s economy.
His November index, the latest he’s published shows a continued trend that the state’s economy is slowing. The index measures a dozen factors – government employment, U.S. consumer sentiment, single-unit housing permits, retail sales, employment services jobs, private service employment, total manufacturing hours, manufacturing wage, labor force, benefit exhaustions, new claims, and unemployment rate change.
Lardaro’s index sets 50 as middle ground, with anything above that showing growth, and below that decline. In 2018, the lowest measure was 58 at the end of the year, in October and December. In 2019, the lowest measure was in February, 33, well under water. Throughout the year, seven measures in 2019 were lower than the same month in 2018; two were the same; and two were higher than 2018. December’s numbers have not yet been reported. Lardaro also fears the numbers could be worse, when “data rebenchmarking” for 2019 revises the numbers lower.
Lardaro’s skepticism comes after Gov. Gina Raimondo, in her state of the state address, portrayed the state’s economy as robust and growing, even with projections that the state is on target for a $200 million deficit this fiscal year. By law, the state will have to find the $200 million, since it is required that each fiscal year ends without a deficit.
Those celebrating the state’s economy point to low unemployment numbers, 3.5 percent in December. That number is consistent with the national rate, and among states ranks Rhode Island in about the middle.
Some of those numbers might be misleading, Lardaro said. “Low unemployment masks where we were coming from…a lot of new jobs added are part-time, with no benefits.”
Lardaro is also concerned about debt. “A lot of what’s popping up is debt. We’re piling up tons of debt for the next generation.”