Citing a notable increase in unemployment claims and a reduction in new housing permits, URI economics professor Len Lardaro says the state has entered a recession.
To make matters worse, there are growing signs of a slowing national economy, which is sparking concern about a prolonged downturn in the Ocean State.
Lardaro spoke with Morning Host Luis Hernandez about Rhode Island’s economic outlook.
Interview highlights
On why he thinks Rhode Island is in a recession
Leonard Lardaro: Rhode Island, although some things are still improving overall (like retail sales), there are more things that are not improving like (new housing permits), bringing down the overall performance. They’re in the contraction range, you could say.
Right now we’re at the mercy of a national economy. The national economy is slowing, the tariff war is making it worse. So we really just have to hang in there.
I think for the longer term, I’m very optimistic. The governor is taking a lot of measures dealing with our labor force (and) education, which is something we should have done decades ago. So there is help coming, but the problem is all of that takes time.
On how the economy is impacting Rhode Islanders
Lardaro: I don’t think that saying Rhode Island is in a recession would come as a terrible surprise. A lot of people are struggling to get by. Middle and lower income individuals are having a really tough time with inflation, with the job market. There’s just so many things going on. They’re just staying in there as best they can, taking on credit. There’s a lot of things, so people feel it.
On why the state’s unemployment rate is deceptive
Lardaro: We have a long history of getting lower or low unemployment rates because our labor force either shrinks or the percentage of our population in the labor force is going down; the participation rate.
We went from double-digit levels some years ago down to about 2.8% because the labor force was declining, which means unemployed people were dropping out of the labor force. So it’s a bogus number. I pay no attention to it. Unfortunately, a lot of people in the state gauge our economy’s performance by the unemployment rate.
If you were to have the same participation rate – in other words, the same percentage of our age-16+ population that is in the labor force as just before the pandemic – and you use the current employment rate, what I get is our unemployment rate would actually be 6.1% and it’s been higher than that prior (to August).
On how long the recession will last
Lardaro: It’s going to last as long as the tariff wars last. Those are very big negatives. You haven’t seen much of the negative effects yet… A lot of businesses knew that tariffs were coming, so they flooded with imports to try and get ahead of this so that “I’m okay if they put the tariffs on. I’m good.” So there’s not much of a tariff effect yet, and there hasn’t been layoffs or any of that.
As we go toward the end of this year and into next year – and this is nationally and Rhode Island – what you’re going to see is that, as (businesses) run out of those front-loaded imports, they’re going to start charging higher prices onto consumers, which will make things tougher for lower and middle-income individuals.
So firms are going to have to start making the choices. Do I take lower margins or do I try and preserve margins by laying off workers? That’s the real fear.
