PROVIDENCE (September 2016) – According to the Rhode Island Current Economic Indicator (CEI) Briefing released today by the Center for Global and Regional Economic Studies at Bryant University and the Rhode Island Public Expenditure Council (RIPEC), the Rhode Island economy is projected to shrink in the second quarter of 2016 at an annualized rate of 1.2 percent. Estimates of the state’s economic growth over the previous three quarters have also been revised downward to account for adjustments and corrections by the U.S. Bureau of Labor Statistics (BLS). Since the first quarter Briefing released in May, the annualized quarterly growth rate has been revised downward from 3.0 to 1.6 percent for the first quarter of 2016; from 2.9 to 1.7 percent for the fourth quarter of 2015; and from 2.1 to negative 0.4 percent for the third quarter of 2015. These revisions to the historical data, combined with the second quarter’s projected negative growth, suggest that Rhode Island’s recent economic performance and long-term recovery from the Great Recession is not as robust at it appeared at the end of the first quarter of 2016. The outlook moving forward is also less optimistic than it appeared at the end of the first quarter – the Rhode Island Leading Economic Indicator projects that the state economy will experience positive but modest growth in the third quarter of 2016 at an annualized rate of 0.3 percent.
The slowdown observed in Rhode Island is consistent with regional trends, as growth has slowed in New England as a whole. The CEI estimates that the New England economy grew at an annualized rate of 0.4 percent in the second quarter of 2016, compared to 1.5 percent in the first quarter and 2.1 percent in the fourth quarter of 2015. The national outlook is brighter, with U.S. Gross Domestic Product (GDP) increasing at an annualized rate of 1.2 percent in the second quarter of 2016, compared to 0.8 percent in the first quarter and 0.9 percent in the fourth quarter of 2015. As a whole, the second quarter Briefing suggests that structural headwinds continue to affect Rhode Island’s economy. Projected negative growth for the second quarter combined with slow growth since the end of the Great Recession has caused the “growth gap” to widen significantly between Rhode Island and the country as a whole.
Six of the eleven internal factors that comprise the Rhode Island CEI negatively affected economic growth in the second quarter. General sales and gross receipt taxes, a proxy for state aggregate demand, fell by 2.8 percent in the second quarter, representing a reversal of positive growth since 2010. Initial unemployment claims also grew in the second quarter, though this 3.5 percent increase is smaller than the 9.6 percent increase in the first quarter of 2016.
Four major industries experienced a contraction in employment during the second quarter. Most notably, employment in construction declined 26.0 percent during the second quarter months, which are typically among the busiest for the construction industry. These losses represent a reversal of four quarters of job growth, including a 27.4 percent increase in the first quarter of 2016. The professional and business services industry also experienced a significant trend reversal: employment in this industry decreased 4.2 percent in the second quarter, compared to an increase of 13.8 percent in the first quarter. Employment in information services continued to decline this quarter, contracting 9.0 percent compared to a decline of 4.5 percent in the first quarter. Finally, employment in financial services decreased 3.1 percent in the second quarter, compared to an increase of 3.2 percent in the first quarter.
While these estimates imply a reversal of the modest growth and labor market improvements observed in 2015, several other internal indicators suggest that the state economy is not headed for recession, yet. Five internal factors positively affected the Rhode Island CEI in the second quarter of 2016. Education and health services, the largest industry in the state, was a bright spot this quarter, with employment increasing by 3.7 percent, compared to a decline of 3.9 percent in the first quarter. Employment in trade, transportation and utilities services also increased by 1.1 percent, after declining for two consecutive quarters. Employment in the leisure and hospitality services industry and the manufacturing industry also expanded this quarter, by 0.7 percent and 2.9 percent, respectively. Finally, real total wages and salary disbursements increased this quarter as well, though the 0.6 percent expansion in the second quarter is lower than the growth experienced in the first quarter of 2016 and the fourth quarter of 2015 (4.8 and 6.7 percent, respectively).
The quarterly CEI, developed by economists at The Center for Global and Regional Economic Studies at Bryant University, combines several key gauges of economic activity in a single statistic that measures the overall current economic conditions in Rhode Island. It is calibrated to grow at the rate of the Real Gross State Product and, therefore, can be interpreted as an estimate of the growth rate of the state economy. The CEI is calculated using the most current available data for the state.
For additional information about the RI CEI or the newsletter, contact Edinaldo Tebaldi, associate professor of economics at Bryant University, at etebaldi@bryant.edu.
