Grimmer outlook for stalled RI economy

PROVIDENCE, R.I. (WPRI) - The expert hired by the state to forecast Rhode Island's economic future offered a grim outlook on Friday - and then warned them things may turn out even worse.

"The risks of going into a second recession are uncomfortably high" despite "some mild cause for optimism," Zachary Sears of Moody's Economy.com told a group of frowning state budget officials as he presented his twice-a-year economic forecast at a Statehouse hearing.

Sears cited four shocks to the global economy that led his firm to sharply lower growth forecasts since he last visited Rhode Island in May: high prices for energy; the Japanese earthquake; the European financial crisis; and, especially, the summertime debt-limit showdown in Congress.

"The biggest thing was the lack of confidence that came about from all those factors," Sears said. "Households and businesses just don't really believe that we are really in a self-sustaining recovery yet." The likelihood of a second recession has fallen to about one in three, down from one in two a few months ago, he said.

Last month, Gov. Lincoln Chafee cited the brinksmanship over the debt ceiling as a key reason Rhode Island's already tepid job growth slowed down after August.

“We heard a lot of people lost confidence after the debt ceiling crisis,” Chafee told WPRI.com, paraphrasing their sentiment: “If Washington can’t do the minimum steps necessary to move the country forward, we’re just losing confidence. We’re going to hunker down. We’re not going to take those little risks we might have taken.”

Municipal layoffs continuing

"In Rhode Island, as at the national level, the recovery is intact," Sears said Friday, though "in Rhode Island it has been a little bit slower."

The state's job numbers have been "volatile" this year, which may be a matter of noisy data rather than real changes in the labor market. The jobless rate fell to 10.5% in September but the state lost 7,400 jobs over the last two months.

That's because while fewer workers are losing their jobs, few out-of-work individuals are finding new ones, keeping the unemployment rate stubbornly high, said Robert Langlais, assistant director of labor market information at the R.I. Department of Labor and Training.

An unknown number of long-term unemployed workers have given up looking for a job altogether, and thousands of others will begin losing their jobless benefits in the coming months unless Congress votes to extend emergency benefit programs, Langlais said.

What's holding back Rhode Island's job market at this point are ongoing layoffs in the public sector, particularly by cash-strapped local governments, Sears said. Manufacturing has not bounced back as robustly in the state as it has in the Midwest, he said.

Construction and government employment is expected to remain weak through 2014, with retail stores leading the way in hiring, according to Sears' forecast. The jobless rate will average 9.9% in 2013, he said.

The housing market remains weak in all five Rhode Island counties, with the number of single-family housing permits hitting a new low during the third quarter of 2011, according to data compiled by Economy.com.

Job growth by 2014 'a tall order'

Rhode Island's snail-paced recovery from the Great Recession is frustrating state officials from the governor on down. Treasurer Gina Raimondo recently described the state's jobs crisis as "a monumental challenge."

"That’s why I’m urging bold action,” Raimondo told WPRI.com in October. “Whether it’s the pensions or any other effort, if we tinker or if we prioritize the short-run view over the long-run view, we’ll just never get out of this mess. It’s time for big thinking and big action.”

Peter Marino, the Senate fiscal advisor, said at Friday's hearing that with each new forecast for the timeframe of job growth, "we keep pushing that out." He said he thinks even Sears' new forecast of a recovery in employment locally by late 2013 or early 2014 is "fairly optimistic."

"We're kind of back to where we were before," added Sharon Reynolds Ferland, the House fiscal advisor, referring to the downgrade in Sears' forecast since May.

"I would agree that the risk is, clearly, squarely on the downside," Sears replied. "All of those assumptions coming to pass - that may be a tall order."

Budget experts will crunch the numbers from Sears and others to figure out how much money the state government will take in during the 2012-13 budget year. That will set the parameters for Governor Chafee's budget proposal in January. This year's state budget totals $7.7 billion.

Ted Nesi ( tnesi@wpri.com ) covers politics and the economy for WPRI.com and writes the Nesi's Notes blog. Follow him on Twitter: @tednesi