The Rhode Island Economic Outlook

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					The Rhode Island
Economic Outlook

 Edinaldo Tebaldi, Ph.D.
   Assistant Professor of Economics
    RI co-forecast manager - NEEP
                                          Changes in Nonfarm Employment, Rhode Island
                                                                                                                                            (thousands)

                                               Significant job losses since Feb/07

                                                                                                     39,500 jobs have been lost
                                          2
                                                                                                      since the recession began




                                                                                                                                                                                                                                                           1.3
 Non-farm Employment Change (Thousands)




                                                                         0.8




                                          1
                                               0.3




                                                                                                                               0.2
                                                                               0




                                          0
                                                           -0.3




                                                                                                                                                                               -0.3
                                                                                     -0.4




                                                                                                          -0.4




                                                                                                                                                                                                                                      -0.4
                                                                                                                        -0.5


                                                                                                                                     -0.6




                                                                                                                                                          -0.6
                                                                                                                                            -0.7
                                          -1




                                                                                                                                                                                      -0.8




                                                                                                                                                                                                                                             -0.8
                                                                                                                                                                                                                                                    -0.8
                                                     -1




                                                                                                                                                                                                                                                                               -1.1
                                                                                            -1.2




                                                                                                                                                                        -1.3
                                                                                                                 -1.4




                                                                                                                                                                 -1.5




                                                                                                                                                                                                                 -1.6
                                                                                                   -1.7




                                          -2
                                                                  -1.9




                                                                                                                                                                                                                               -2.2
                                                                                                                                                                                                                        -2.4
                                                                                                                                                   -2.5

                                          -3




                                                                                                                                                                                                                                                                 -2.8
                                                                                                                                                                                             -2.9
                                                                                                                                                                                                    -3
                                                                                                                                                                                                          -3.2
                                          -4
                                                                                                          NEEP forecasts that 5,000




                                                                                                                                                                                                                                                                        -3.8
                                          -5                                                                jobs will be lost until
                                                                                                                  mid-2010
                                                     Feb




                                                                                                                                     Feb
                                                                                                   Sep


                                                                                                                 Nov




                                                                                                                                                                                      Sep


                                                                                                                                                                                                    Nov




                                                                                                                                                                                                                        Feb
                                                                                                                        Dec




                                                                                                                                                                                                          Dec




                                                                                                                                                                                                                                                                        Sept
                                               Jan




                                                                         May




                                                                                                                                                          May




                                                                                                                                                                                                                                             May
                                                           Mar
                                                                  Apr




                                                                                            Aug




                                                                                                                               Jan




                                                                                                                                                   Apr




                                                                                                                                                                               Aug




                                                                                                                                                                                                                 Jan




                                                                                                                                                                                                                                      Apr
                                                                               Jun




                                                                                                                                            Mar




                                                                                                                                                                                                                               Mar
                                                                                                          Oct




                                                                                                                                                                 Jun




                                                                                                                                                                                             Oct




                                                                                                                                                                                                                                                    Jun


                                                                                                                                                                                                                                                                 Aug


                                                                                                                                                                                                                                                                               Oct
                                                                                     Jul




                                                                                                                                                                        Jul




                                                                                                                                                                                                                                                           Jul
                                                                               2007                                                                              2008                                                                        2009

Source: U.S. Bureau of Labor Statistics
                                                                                   The Great Recession
                        Current economic conditions in RI are significantly worse than
                         that in the 1970s, 1980s, 1990s and early 2000s’s recessions

                                                                                             Unemployment Rates
                        17




                                                                                                                                                                                                                           RI, 14.1
                        15




                                                                                                                                                                              RI, 12.9




                                                                                                                                                                                                                                      New England, 9.4
                                                                                                                                                                                         New England, 8.8
Unemployment Rate (%)




                                                                                                                                                                                                              U.S., 10.7
                             U.S., 10.7




                        13




                                                                                                                                                                 U.S., 10.2
                                                                                             New England, 8.0
                                                    New England, 7.8
                                          RI, 9.7




                        11
                                                                                   RI, 8.9




                                                                                                                                              New England, 5.5
                                                                       U.S., 7.6




                        9

                                                                                                                       U.S., 6.1

                                                                                                                                   RI, 5.4
                        7


                        5


                        3
                                 Q4 - 1982                                Q3 - 1992                                       Q2 - 2003                                  Q3 - 2009                              Trough (Q3-2010)

                                                                                                                U.S.                         RI                    New England                                   Forecast

                  Source: New England Economic Partnership (NEEP)
              Missing the late 1980s?

                                        Unemployment   Poverty   Population    Real GDP
•Low unemployment           State         Rate, 1990
                                           (average)
                                                        Rates,
                                                        1990
                                                                  Growth
                                                                 1985-1990
                                                                              1985-1990
                                                                              Annual average
•Low poverty rate       United States       5.62        13.5       4.53%          2.5%
• Strong pop. Growth    Connecticut          4.9          6        2.69%          4.2%
                        Maine               5.28        13.1       5.59%          3.9%
•Strong GDP growth      Massachusetts       6.33        10.7       2.31%          2.6%
                        New Hampshire       5.65         6.3      11.29%          3.2%
                        Rhode Island        6.11        7.5       3.56%           3.2%
                        Vermont             4.92        10.9       6.17%          5.2%



                                                    Current
                                                                 Population     Real GDP
                                        Unemployment   Poverty
                            State                                 Growth      (2003-2008)
                                          Rate, 2009    Rates
•High unemployment                                               2003-2008    Annual average
                        United States        10.2        13.2      4.69%          2.25%
•High poverty rate      Connecticut          8.8         8.1       0.81%          2.06%
•Population shrinking   Maine                8.2          12       1.00%          1.47%
•Weak GDP growth        Massachusetts        8.9         11.3      0.92%          2.02%
                        New Hampshire        6.8          7        2.57%          1.85%
                        Rhode Island        12.9         12.7      -2.04%         0.86%
                        Vermont              6.5          9        0.68%          1.93%
                  The current recession made RI’s fundamental economic
                   problems more noticeable… but the state’s failure to
                           create new jobs is not a new problem



                                                                                                       knowledge-based economy
                                       550                                                                                                                                                                                                                                                                                                                     0.46%
Total nonfarm Employment - Thousands




                                                                                                                                                                                                                                                                                                                                Forecast
                                                                                                                                                 RI Share of US employment




                                                                                                                                                                                                                                                                                                                                                                       RI Share of U.S. employment (%)
                                                                                                                                                                                                                                                                                                                                                               0.44%
                                       500
                                                                                                                                                                                                                                                                                                                                                               0.42%

                                                                                                                                                                                                                                                                                                                                                               0.40%
                                       450

                                                                                                                                                                                                                                                                                                                                                               0.38%

                                       400
                                                                                                      Total employment                                                                                                                                                                                                                                         0.36%

                                                                                                                                                                                                                                                                                                                                                               0.34%
                                       350
                                                                                                                                                                                                                                                                                                                                                               0.32%

                                       300                                                                                                                                                                                                                                                                                                                     0.30%
                                             1980Q1
                                                      1981Q1
                                                               1982Q1
                                                                        1983Q1
                                                                                 1984Q1
                                                                                          1985Q1
                                                                                                   1986Q1
                                                                                                            1987Q1
                                                                                                                     1988Q1
                                                                                                                              1989Q1
                                                                                                                                       1990Q1
                                                                                                                                                1991Q1
                                                                                                                                                         1992Q1
                                                                                                                                                                  1993Q1
                                                                                                                                                                           1994Q1
                                                                                                                                                                                    1995Q1
                                                                                                                                                                                             1996Q1
                                                                                                                                                                                                      1997Q1
                                                                                                                                                                                                               1998Q1
                                                                                                                                                                                                                        1999Q1
                                                                                                                                                                                                                                 2000Q1
                                                                                                                                                                                                                                          2001Q1
                                                                                                                                                                                                                                                   2002Q1
                                                                                                                                                                                                                                                            2003Q1
                                                                                                                                                                                                                                                                     2004Q1
                                                                                                                                                                                                                                                                              2005Q1
                                                                                                                                                                                                                                                                                       2006Q1
                                                                                                                                                                                                                                                                                                2007Q1
                                                                                                                                                                                                                                                                                                         2008Q1
                                                                                                                                                                                                                                                                                                                  2009Q1
                                                                                                                                                                                                                                                                                                                           2010Q1
                                                                                                                                                                                                                                                                                                                                    2011Q1
                                                                                                                                                                                                                                                                                                                                             2012Q1
                                                                                                                                                                                                                                                                                                                                                      2013Q1
                                                                                                       Nonfarm Employment                                                                                RI share of US Nonfarm Employment

Source: New England Economic Partnership (NEEP), U.S. Bureau of Labor Statistics
        How Did We Get Here?
   Attracting and Retaining People
            and Businesses

                           Infrastructure                          Taxes

             Good school system                          State income tax
             Quality in public services                  Capital gain taxes
Individual   Health Care quality                         Estate taxes
             Arts, Leisure, and natural resources        Sales taxes


             Qualified labor force
             Access to Ports, Airports, connected highways
                                                            Corporate taxes
              Access to an expedited business
Business       permit/license process
                                                            Tax Incentives
                                                            Manageable tax system
              Institutional support for small business and
               for promoting access to global markets
       How did we get here?



  Rhode Island failed to provide
  competitive tax and regulatory
systems, negatively affecting the
   incentives for attracting and
 retaining people and businesses
and promoting economic growth.
         The State Ranks Poorly in Key
                   Indicators


                          Best State Best State
                                                 Regulatory                 Economic         Business        Growth Quality Of
                             For        For                                                           Labor
        State                                   Environment                  Climate          Costs         Prospects  Life
                          Business, Business,                                                         2009d
                                                   2009a                      2009b           2009 c         2009 d   2009e
                            2006       2009
New Hampshire                  20             19               46                26              41          5            5    4

Massachusetts                  36             34               22                33              48         16            40   2

Connecticut                    33             35               33                31              45         18            37   3
Maine                          46             41               32                39              44         25            28   19
Vermont                        36             47               44                49              43         13            42   9
Rhode Island                   45             50               50                48              40         35            18   21

 a Measures regulatory and tort climate, incentives, transportation and bond ratings.
 b Reflects job, income and gross state product growth as well as unemployment and presence of big companies.
 c Index based on cost of labor, energy and taxes.
 d Measures educational attainment, net migration and projected population growth.
 e Reflects projected job, income and GDP growth as well as business openings/closings and venture capital investments.
 e Index of schools, health, crime, cost of living and poverty rates.
  Source: Forbes
State-Local Tax Burden, 1977-2008




                                                                                          2008
                                                                                          2007
                                                                                          2006
                                                                                          2005
                                                                                          2004
                                                                                          2003
                                                                                          2002
                                                                                          2001
                                                                                          2000
                                                                                          1999
                                                                                          1998
                                                                                          1997   MA
                                                                                          1996
                                                                                          1995
                                                                                          1994


                                                                                                 US Average
                                                                                          1993
                                                                                          1992
                                                                                          1991
                                                                                          1990
                                                                                          1989




                                                                                                              Source: Tax Foundation
                                                                                          1988
                                                                                          1987
                                                                                          1986




                                                                                                 RI
                                                                                          1985
                                                                                          1984
                                                                                          1983
                                                                                          1982
                                                                                          1981
                                                                                          1980
                                                                                          1979
                                                                                          1978
                                                                                          1977
                                    12.0%

                                            11.5%

                                                    11.0%

                                                            10.5%

                                                                    10.0%

                                                                            9.5%

                                                                                   9.0%
Small Business Survival Index,
            2007

   State                                             Ranking
   New Hampshire                                       23
   Connecticut                                         38
   Vermont                                             43
   Massachusetts                                       44
   Maine                                               47
   Rhode Island                                        48
   Source: Small Business Entrepreneurship Council
              …and more bad indicators


Indicator                                           Source     Rank

Utilization of digital technologies in state
governments                                         Kauffman    41
Technology in Schools                               Kauffman    45
Per Capita State Appropriations for Higher Education Milken     45
% university R&D from State and local gov't         own         41
% university R&D from Industry                      own         40
Source: Author’s compilation
    But we should not overlook the state’s strengths:
 Rhode Island Has strong Science & Technology Indicators




                                                                     RI       RI     US Average
                    Indicator                       Source         Ranking   Score     Score
                                                                    2008     2008       2008
Business Climate For Technology-based Activity
 High-Tech Industries with I.Q. Higher than 1.0 Milken Institute     11        9          -
 State Technology and Science Index             Milken Institute     10      66.69       54
 Technology Concentration and Dynamism          Milken Institute     13      66.44       54
 Industry Investment in R&D                     Kauffman             3       5.23       3.31
 R&D Inputs Composite Index                     Milken Institute     6       72.44        -
Cyberinfrastructure
 Broadband Telecommunications                   Kauffman             2        8.7        5
 Health IT                                      Kauffman             2        9.1       1.9
 Internet Domain Names                          Kauffman             30      3.52      5.09
 Online Population                              Kauffman             27      72.48     71.67
Source: Author’s compilation
   Rhode Island’s has a significant
    pool of well-qualified workers

                                                                                            US
                         Indicator                         Source         Ranking   Score   Average
                                                                                            Score
Science & Technology Workforce
   Human Capital Investment Composite                  Milken Institute     15       62.1      52
   Immigration of Knowledge Workers                    Kauffman             23        12      11.4
   IT Professionals                                    Kauffman             25       1.25     1.37
   Migration of US Knowledge Workers                   Kauffman             6        14.1     13.1
   Percent of Age 25+ with Bachelors or higher         Milken Institute     15       0.31       -
   Percent of Age 25+ with PhD                         Milken Institute     29       0.01       -
   S&T work force composite index                      Milken Institute     13      68.31      56

University Based S&T Research
    Percent of Bachelor Degrees in Sci & eng          Milken Institute      18      0.17        -
    Percent of Grad Students in Sci & Eng             Milken Institute      10      0.02        -
    Recent PHD Degrees in Sci & Eng per 1,000 workers Milken Institute      10       0.3        -
    Scientists and Engineers as a % of workforce      Kauffman              5       0.49      0.34
    % university R&D from Institution funds           own                   13      27%       20%
Source: Author’s compilation
    Attracting and Retaining People
             and Businesses

                         Infrastructure                        Taxes
             Good school system                      State income tax
             Quality in public services              Capital gain taxes
Individual   Health Care quality                     Estate taxes
             Arts, Leisure, and natural resources    Sales taxes

             Qualified labor force
             Access to Ports, Airports, connected
             highways
                                                        Corporate taxes
              Access to an expedited business
Business       permit/license process
                                                        Tax Incentives
                                                        Manageable tax system
              Institutional support for Small business
               and for promoting access to global
               markets

The State needs a comprehensive plan to:
Address its weaknesses;
Build upon its strengths;