Q1 2017 Current Economic Indicator: Rhode Island Economy on a Solid Growth Path

Rhode Island Public Expenditures Council

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Q1 2017 Current Economic Indicator: Rhode Island Economy on a Solid Growth Path

PROVIDENCE (May 2017) – Today, the Center for Global and Regional Economic Studies at Bryant University and the Rhode Island Public Expenditure Council (RIPEC) jointly released the Rhode Island Current Economic Indicator (CEI) Briefing for the first quarter of 2017. The full briefing can be found here.

According to the briefing, the Rhode Island economy grew at an annualized rate of 2.9 percent (preliminary) in the first quarter of 2017, compared to 1.6 percent growth in the fourth quarter and 5.0 percent growth in the second and third quarters of 2016.  Relatively strong growth over the last four quarters contrasts sharply with a 4.4 percent contraction in the state’s gross domestic product (GDP) in the first quarter of 2016.  Despite relatively strong performance in the last three quarters of 2016, Rhode Island’s economy expanded by only 1.2 percent from 2016 to 2017, the 27th highest annual state GDP growth rate in the country.

The positive economic momentum of the last four quarters is expected to continue, with the Rhode Island Leading Economic Indicator projecting that the state’s economy will expand at an annualized rate of 2.0 percent in the second quarter of 2017.

“Rhode Island’s economic growth over the last four quarters is promising,” said John C. Simmons, Executive Director of RIPEC. Simmons added, “However, there are causes for concern, and the strength of the state’s economy should not be overstated.”  In particular, the state’s May revenue estimates project that state revenues will be $60.1 million lower than anticipated in the current fiscal year (FY) 2017, and $39.5 million lower than anticipated in FY 2018.  Much of that shortfall is due to significant reductions in anticipated general business tax collections, which are projected to fall short of November 2016 estimates by $56.4 million in FY 2017 and $23.8 million in FY 2018.  Sales and use taxes are also projected to fall short of November estimates, by $12.3 million in FY 2017 and $1.5 million in FY 2018, despite new collections from online retailer Amazon that began in February 2017.  Personal income tax collections were also revised downward, by $0.9 million in FY 2017 and $18.9 million in FY 2018.   According to Simmons, “these revised estimates raise questions about the nature of economic growth in Rhode Island, the types of jobs we are creating, and the robustness of the state’s recovery since the Great Recession.  Clearly, more work must be done to promote the kind of economic growth and development that is broadly-based and sustainable in the long term, including a focus on growing high-wage jobs, attracting businesses in high-growth sectors, and generally making Rhode Island a more attractive place to live, work, and do business.”

The New England economy also experienced positive economic growth over the last four quarters, though growth was stronger in Rhode Island than in the region as a whole.  The Regional CEI estimates that the New England economy grew at an annualized rate of 2.4 percent in the first quarter of 2017, compared to 1.9 percent, 3.6 percent, and 0.7 percent growth in the fourth, third, and second quarters of 2016, respectively.  Rhode Island also grew faster than the US economy as a whole in three of the last four quarters: US GDP grew at an estimated annualized rate of 0.7 percent in the first quarter of 2017, and 2.1 percent, 3.5 percent, and 1.4 percent in the fourth, third, and second quarters of 2016, respectively.  However, despite several quarters of relatively stronger economic growth in Rhode Island, the “growth gap” between the Ocean State and both the New England region and the US as a whole remains significant – an indication of Rhode Island’s slower and less robust recovery since the Great Recession.

Ten of the eleven CEI components positively impacted Rhode Island’s economic performance in the first quarter of 2017.  General sales and gross receipt taxes, a proxy for aggregate state demand, increased for the third quarter in a row, growing by 1.3 percent (seasonally adjusted).  Real wage and salary disbursements also experienced growth this quarter, increasing by 3.0 percent (annualized, seasonally adjusted) after a decline of 1.9 percent in the last quarter of 2016.  The state’s unemployment rate is also trending downward, as indicated by an 18.3 percent decline (seasonally adjusted) in average weekly initial unemployment claims in the first quarter of 2017, compared to a 14.1 percent increase in the previous quarter.

Employment expanded in seven of the eight industries included in the CEI during the first quarter of the year.  The construction industry experienced its third consecutive quarter of employment growth, expanding by an annualized, seasonally adjusted rate of 30.2 percent in the first quarter of the year.  Six other industries experienced more modest employment growth (annualized, seasonally adjusted) relative to the fourth quarter of 2016, including trade, transportation and utilities (3.2 percent); professional and business services (2.8 percent); leisure and hospitality (1.9 percent); manufacturing (1.7 percent); financial services (1.2 percent); and education and health services employment (0.2 percent).

Information services employment is the only factor that negatively impacted Rhode Island’s CEI this quarter.  Employment in this sector contracted for the second quarter in a row, decreasing by 11.1 percent (annualized, seasonally adjusted), compared to a contraction of 12.5 percent in the previous quarter.

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.