Rhode Island: Growth Stronger than Expected in Second Half of 2016

Rhode Island Public Expenditures Council

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Rhode Island: Growth Stronger than Expected in Second Half of 2016

PROVIDENCE (February 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 fourth quarter of 2016. According to the briefing, the Rhode Island economy grew at an annualized rate of 3.6 percent in the third quarter and 2.0 percent (projected) in the fourth quarter of 2016, compared to a meager 0.2 percent growth in the second quarter and a 2.8 percent contraction in the first quarter of 2016. Rhode Island’s growth in the second half of 2016 was stronger than expected, especially in the third quarter. This performance was largely driven by favorable regional and national economic conditions, as well as improvements in the labor market. The Rhode Island Leading Economic Indicator projects that the state economy will expand at an annual growth rate of 1.9 percent in the first quarter of 2017. The full briefing can be found here.   

Rhode Island’s economic performance in the second half of 2016 was consistent with regional trends. The Regional Current Economic Indicator estimates that the New England economy grew at an annualized rate of 2.3 percent in the fourth quarter (compared with 2.0 percent in Rhode Island) and 3.8 percent in the third quarter (compared with 3.6 percent in Rhode Island) of 2016. 

Unlike in the first two quarters of 2016, Rhode Island’s economy actually grew at a slightly faster pace than the U.S. as a whole in the latter half of the year – U.S. Gross Domestic Product (GDP) increased at an annualized rate of 1.9 percent in the fourth quarter and 3.5 percent in the third quarter of 2016. Nevertheless, the growth gap between Rhode Island and the U.S. as a whole remains significant. The state’s economic growth remains relatively sluggish due to ongoing structural problems related to the labor force (e.g. skills mismatch), the aging of the population compounded by the lack of population growth, and a costly business environment.  

Five of the eleven CEI components negatively impacted Rhode Island’s economic performance in the fourth quarter of 2016. Average weekly initial unemployment claims increased by 14.9 in the final quarter of the year, compared to a 12.1 percent decline in the third quarter. Four industries also experienced a contraction in seasonally-adjusted employment: manufacturing (Rhode Island’s ninth largest industrial sector by employment out of eleven total sectors) declined by 9.2 percent annualized after experiencing two consecutive quarters of growth; information services (Rhode Island’s tenth largest industrial sector) declined by 6.4 percent annualized after experiencing growth in the third quarter; financial services (Rhode Island’s seventh largest industrial sector) declined by 2.4 percent annualized, making this the third consecutive quarter of negative growth; and education and health services (Rhode Island’s largest industrial sector) declined by 1.4 percent annualized, after experiencing two consecutive quarters of growth.

In contrast, six internal factors positively impacted the Rhode Island CEI in the fourth quarter. General sales and gross receipts taxes, a proxy for aggregate demand in the state, increased for the second consecutive quarter at an annualized, seasonally-adjusted rate of 1.2 percent in the fourth quarter. Improvements in the labor market also spurred growth in real wages and salary disbursements for the third straight quarter, with a 1.8 percent annualized increase in the fourth quarter.

Four industrial sectors also experienced seasonally-adjusted employment growth in the fourth quarter of 2016: leisure and hospitality (Rhode Island’s fifth largest industrial sector by employment) experienced the largest increase, 14.2 percent annualized, making this the ninth consecutive quarter of growth; construction (Rhode Island’s ninth largest industrial sector) grew by 12.9 percent annualized after shrinking for two consecutive quarters; trade, transportation and utilities (Rhode Island’s second largest industrial sector) increased for the third straight quarter, by 3.2 percent annualized; and professional and business services (Rhode Island’s third largest industrial sector) grew for the second quarter in a row, by 2.8 percent annualized.

“The state’s economic performance in the second half of 2016 is promising,” said John C. Simmons, Executive Director of RIPEC. Simmons added, “However, structural factors continue to hold the state back, as evidenced by the substantial growth gap between Rhode Island and the rest of the country since the Great Recession. Now that we’ve regained our footing, it is time to reassess the state’s economic development strategy – leaders should focus on systemic reforms that will improve the underlying business climate in the state, and gradually move away from the current strategy, which relies heavily on tax incentives and other one-off programs.”

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.