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State’s economy predicted to get even worse before it gets better

01:00 AM EST on Thursday, November 20, 2008

By Lynn Arditi

Journal Staff Writer

Rhode Island’s economy is expected to worsen next year with more layoffs, higher unemployment and continued declines in house prices, according to a forecast scheduled to be presented today at the New England Economic Partnership’s fall conference in Boston.

During the next two years, Rhode Island is projected to lose nearly 15,000 more jobs and unemployment will hit 10 percent, probably by the end of next year — the highest in nearly three decades. This recession is shaping up to be longer and more severe than the 1980-82 recession, said Edinaldo Tebaldi, assistant professor of economics at Bryant University and NEEP’s co-forecaster for Rhode Island.

“We’re going to have a very long and deep recession,” Tebaldi said. “Rhode Island won’t see the economy recover until 2011.”

Forecasts for all six New England states will be presented at the conference, “Speaking Frankly: New England’s Economic Future.”

Rhode Island in September posted the highest unemployment rate in the country (8.8 percent), just ahead of Michigan, and so far this year has shed 12,600 payroll jobs. Job losses initially have been concentrated in manufacturing, construction and clerical work, but the expectation is that those job losses will spread to all industries, with the exception of education, health care and technology.

The NEEP forecast says the state will lose 3,400 jobs during October, November and December. The state lost 1,300 jobs in September and the October numbers will be released tomorrow.

During recessions, the government often acts as a “buffer” to help revive the economy, Tebaldi said, by increasing spending to generate jobs and boost economic activity. But state government is actually “doing the opposite” by cutting personnel and programs in order to close a budget deficit, he said.

“So rather than operating as a buffer to help the economy get out of the recession faster,” Tebaldi said, “they’re actually contributing to make the recession even more severe.”

(Tebaldi will deliver the forecast for University of Rhode Island professor and NEEP forecaster Edward M. Mazze, who is unable to attend the conference.)

Government jobs now account for about 13 percent of total payroll employment in Rhode Island, roughly the same as in Massachusetts. In New Hampshire, government employment account for about 14 percent of all payroll jobs.

In the recession of 1980-82, Rhode Island lost 15,200 jobs and the unemployment rate peaked during the fourth quarter of 1982 at 9.7 percent.

This time, the state is expected to lose 24,000 jobs from 2007 through 2009 and the unemployment rate is expected to peak in mid-2010 at 10.3 percent. (The unemployment rates are based on quarterly data.) This recession is also expected to last three years instead of two.

The housing market also is not forecast to turn around anytime soon, according to NEEP. In Rhode Island, house prices became so inflated that by the third quarter of 2005, the median price was 30 percent above the level which economists consider a historical benchmark in relation to median household income. So far, house prices have declined about 11 percent since the 2005 peak, Tebaldi said, but they still have 24 percentage points to fall. (The price forecast covers all types of houses, including multi-family and condos.)

The inventory of unsold houses appears to be stabilizing, which is a good sign, he said, “but you won’t see prices increase until 2011.”

Rhode Island’s per capita income is expected to fall 0.8 percent this year and 0.9 percent next year before it rises by 1.6 percent in 2010. That would bring the income levels just under what they were in 2007, Tebaldi said.

Housing permits are expected to hit 806 next year and 900 in 2010, before they rise to 1,241 in 2011, according to the NEEP forecast.

larditi@projo.com

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