R.I. recession predictions abated but job recovery still lags
Economic forecasters now expect ‘drawn-out period of slow growth’
Michael Lynch (left) and Michael Konidaris (right), both with S&P Global Market Intelligence, give an updated economic forecast to state budget analysts on Monday. (Photo by Nancy Lavin/Rhode Island Current)
The recession making advances on Rhode Island last fall has backed off, reduced to a flirtation rather than a full-on relationship, state economic consultants told state budget analysts on Monday.
That’s good news for the immediate future, with job numbers, the unemployment rate and other key indicators looking better than expected for the fiscal year that starts July 1. But the economic picture a few years out isn’t so rosy – not a recession, per se, but a “drawn-out period of slow growth,” said Michael Lynch, S&P Global Market Intelligence’s associate director of U.S. regional economics.
Exactly how the economic forecasts presented Monday during the biannual Revenue and Caseload Estimating Conference will shape state spending in the year ahead is still being ironed out; the conference continues through May 10.
But new estimates suggest the state may avoid the recessionary downturn and rebound initially expected when economists met last November. Among the biggest revisions is to private sector and government jobs, which economists now expect to be 8,500 more in fiscal year 2024 than what they predicted six months ago. And rather than a 5.1% unemployment rate for the year starting July 1, the percentage of Rhode Islanders looking for, but unable to find, work is now projected to be 3.8%.
The immediate future also shows relief for the housing crunch with stronger construction rates for new housing and a sharp decline in the median price of a single-family home by the end of the calendar year, according to S&P.
Still, inflation hangs heavy over the economic future in Rhode Island and nationwide. The average U.S. consumer price index for fiscal 2024 has risen since economists met last November, now pegged at 3.5% rather than 2.9%.
“Inflation is key for the forecast,” said Michael Konidaris, S&P’s associate director for research advisory specialty solutions. “The economy is in a precarious position and is expected to flirt with a recession in the next year.”
Indeed, “core” inflation (excluding food and energy prices which are more volatile) isn’t expected to drop back to 2% until 2025, according to S&P’s projections.
Job recovery pace is slow
Rhode Island largely follows the national path, with a few caveats. The Ocean State may be shielded from the continued fallout of the banking crisis compared with cities like Boston or San Francisco, Lynch said.
On the flip side, the state is already lagging behind when it comes to recovering all of the jobs lost during the pandemic – the only New England state besides Maine not to hit that milestone yet.
The economy is in a precarious position and is expected to flirt with a recession in the next year.
– The economy is in a precarious position and is expected to flirt with a recession in the next year. Michael Konidaris, S&P’s associate director for research advisory specialty solutions.
An expected slowdown in job growth means the state may take until the end of 2024 to hit pre-pandemic job numbers, according to S&P. The Rhode Island Department of Labor and Training, which also offered information about the current and future labor market, expected the state to recover all jobs lost during the pandemic by this summer.
Further straining Rhode Island’s labor market and its overall economy are state population declines, with more residents expected to leave the state than newcomers arriving through 2027, according to S&P.
Rhode Island has already suffered from waning population counts in recent years. The state lost just shy of 1,000 people from 2020 to 2021, according to recently published data from the Internal Revenue Service. Unlike other states, the exodus didn’t cost the state income; adjusted gross income in Rhode Island actually increased by $186.4 million despite the population loss, suggesting greater wealth among those moving to the state than those leaving it.
Early signals of the coming economic slowdown are emerging, as highlighted by the Rhode Island Public Expenditure Council in its quarterly Key Performance Indicators report, published Tuesday. The quarterly report, done in concert with the Center for Global and Regional Economic Studies at Bryant University, shows strong first-quarter employment data in the Ocean State – increasing jobs and net sales tax receipts compared with the fourth quarter of 2022. But employment levels, which rebounded sharply in the wake of the pandemic, have now flattened, according to the report.
Labor market constraints also mean less revenue flowing to state coffers. As of March, personal income tax revenue had come in $76.2 million, or 5.6%, less than expected, according to the R.I. Department of Revenue. The underperforming tax revenue means that the initial $610 million budget surplus projected for fiscal 2023 is likely to shrink.
Michael DiBiase, executive director of RIPEC, said the shrinking surplus will force lawmakers to make tough choices on spending, both in the immediate and long-term future, especially as the state’s windfall of federal stimulus money runs out.
Hard choices ahead
“We’re certainly seeing much less growth in revenues than we are spending,” DiBiase said. “We’re going to have to make some changes, and some hard choices around tax relief and spending.”
Choices like education and health and human services, spending for which has grown exponentially in recent years at a rate the state coffers cannot sustain much longer, DiBiase said.
As for the $100 million in tax relief Gov. Dan McKee proposed in his fiscal 2024 budget – ranging from incrementally decreasing the state sales tax, suspending the litter tax paid by businesses and halting increases to the gas tax – any long-term reductions (versus one-time allocations) should be scrutinized more closely, DiBiase said.
Olivia DaRocha, a spokesperson for McKee, said in an email it was too early to comment on the economic forecasts shared Monday.
“The Revenue and Caseload Estimating Conferences are scheduled to continue through Wednesday, May 10, when updated projections will be adopted by the conferees,” DaRocha said. “Until all the data is available, it is premature to comment on specific portions of testimony provided so far. The Governor’s office will continue to closely follow the testimony over the next several days.”
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