Negative Spiral

I suspect Governor Carcieri is on his way out. Below is a follow-up to this week's earlier posts about RI economics. If you don't feel like reading, the takeaway is RI has the second worst unemployment rate in the nation after Michigan, and indicators point to continued deterioration.

State jobless rate hits 16-year high; 50,200 out of work
01:00 AM EDT on Friday, October 17, 2008
By Lynn Arditi

Journal Staff Writer

Rhode Island’s recession deepened as employers slashed payrolls for the ninth straight month and the state unemployment rate last month climbed to 8.8 percent, its highest level in 16 years, a government report released today shows.

Jobs in September shrank by 1,300 and the ranks of the unemployed swelled to 50,200 — the highest on record, according to the state Department of Labor and Training.

(The state unemployment rate for the last three months has averaged above 8 percent, which prompted state labor officials to offer another round of extended unemployment benefits, expected to begin mid-November.)

During the last nine months, the state has lost roughly 12,600 jobs and the unemployment rate has jumped more than 3 percentage points, from 5.7 percent to 8.8 percent.

The latest job numbers come amid reports this week that the national economy is on the brink of a deep recession, which one forecaster predicts will not hit bottom until the third quarter of next year. A recession is generally defined as a prolonged, broad-based decline in economic activity.

Economists have been saying for months that Rhode Island — where the unemployment rate in July and August was the second-highest in the country, behind Michigan — is already in a recession. (Rhode Island’s unemployment rate in August was 8.6 percent.)

Now, as the national economic forecast darkens, economists say, the country’s smallest state will have fewer out-of-state tourists, fewer people eating out or shopping and generally less demand for the goods and services that Rhode Island exports.

“Those are your customers,” said David Wyss, chief economist at Standard & Poors in New York. “When your customers are doing badly, you do badly.”

Even the local housing market, which during the boom years attracted buyers priced out of the Boston market, no longer commands the same interest since Boston-area house prices have also fallen, Wyss said, and high gas prices discourage longer commutes.

Massachusetts yesterday reported the state lost 3,800 jobs last month — the third month in a row of job losses — and the unemployment rate ticked up one-tenth of a percentage point, to 5.3 percent.

Nationwide, jobs have fallen now for nine months, and the national unemployment rate last month remained unchanged at 6.1 percent.

“This recession looks like it’s going to be pretty bad,” said Andres Carbacho-Burgos, an economist at Moody’s Economy.com who covers Rhode Island. “But it’s not going to be as bad as people lived with in the early 1990s — provided we don’t get hit with even worse bad news.”

Rhode Island is forecast to lose another 7,700 jobs, and its payroll employment by then will have declined 5 percent off its peak in January 2007, according to Moody’s Economy.com.

During the 1990-1992 recession, Rhode Island lost more than 40,000 jobs, or more than 9 percent of its payroll employment, according to Moody’s.

Jared Bernstein, a labor economist at the Economic Policy Institute in Washington, said the Rhode Island economy is suffering from a “collision of a bunch of bad things.” The collapse of the housing sector, problems in financial markets, the state’s long decline in manufacturing and a slowdown in income growth, Bernstein said, have created a “negative spiral.”

Rhode Island last month reported job losses in manufacturing, retail and wholesale trade, professional and business services, and health care and social assistance, the state reported.

Retail trade employment was down 1,900 jobs from a year earlier, the steepest drop of any sector. (Nationally, the Commerce Department reported this week that retail sales plunged in September to their lowest level in three years.) Jobs in “other services,” including auto repair shops and hair stylists, reportedly declined by 1,400 from a year earlier.

Employment in the professional and business services sector, which includes temporary help agencies, shed 1,200 jobs since September of last year. Temporary workers are considered to be an “economic indicator” because they tend to rise when the economy is growing and fall as it contracts.

State labor officials yesterday said that the rise in the three-month average unemployment rate to above 8 percent provided the trigger to request permission from federal labor officials to offer a second round of state benefit extensions to Rhode Island residents who have run out of unemployment benefits.

State unemployment benefits normally last up to 26 weeks. The state already has granted one extension for up to 13 weeks for jobless residents who run out of their regular benefits and have also exhausted the extended benefits offered under a federal program approved by Congress.

The latest state extension provides up to seven additional weeks — for a maximum of 20 weeks — of extended benefits for jobless residents, said Raymond A. Filippone, the state labor department’s assistant director of income support. State labor officials will notify eligible residents by mail if they qualify for the extended benefits, he said.