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12.30.2001 00:31
Tough times return
to Rhode Island, but
it could be worse
This story was compiled with reports by Lynn Arditi, Timothy Barmann, Neil Downing, Lisa Biank Fasig, Andrea Stape and Bob Wyss.
Rhode Islanders will start the New Year in the middle of the first recession in 10 years.
The state's economy already was sputtering on Sept. 11 when two jets slammed into the World Trade Center in New York City.
The terrorists' attack seemed to stop the world. Local businesses shut down and sent workers home. T.F. Green Airport closed. Security checkpoints were set up.
Wall Street closed the stock markets. When they reopened, stocks tumbled and the Dow Jones Industrial Average fell below 9,000. People who seemed to grow wealthy during the booming 1990s all appeared a little poorer.
Unemployment rose. Consumer confidence fell. Many wages were frozen. Some of Rhode Island's biggest companies, such as CVS and Textron, stumbled badly.
Still, the recession is not expected to run as deep or as long as the last one in 1991. Economists forecast that by fall, Rhode Island's recovery should be under way.
While Rhode Islanders braced for the slowdown, they also celebrated successes in rebuilding its economy. Taxpayers received an unexpected rebate in mid-summer, borrowing costs were low and housing boomed. The financial services and pharmaceutical industries continued to grow.
The churning economy also cost Rhode Island some of its publicly-traded companies. Gone or delisted from the national exchanges are Aerovox, Bacou, Log on America, Network Six and Swank.
This was also the year Rhode Islanders almost lost Newport Creamery. The local icon slipped into bankruptcy and after months of courtroom drama, the owner of local Burger Kings won an auction to take over what is left of the restaurant chain.
Here's a review of the other top business stories in Rhode Island last year.
That sinking feeling
The recession slowly crept into Rhode Island during 2001.
A recession is usually defined as two quarters of declining economic output, or gross domestic product. However, the National Bureau of Economic Research in late fall said the country entered this recession in March, when GDP growth was still positive.
The Federal Reserve Board, President Bush and Congress all tried to fight the slowing economy. The Fed lowered the prime lending rate 11 times during the year, bringing it to 1.75 percent, the lowest in nearly four decades.
Congress approved broad tax-cutting and pension-reform legislation in May, and the U.S. Treasury mailed more than $38 billion in tax rebates to more than 90 million taxpayers. The law also reduced federal tax rates, in stages, a process that began July 1 and continues on Jan. 1.
The new federal tax-cutting law would have lowered state income-tax revenues for Rhode Island if the General Assembly and Governor Almond had not decided to change the way the state income tax is collected. The new rates are reflected in the forms, tables and tax booklets that the state is mailing.
The government actions were not enough to prevent corporations from cutting spending by reducing their work forces. In Rhode Island, layoffs pushed the state's unemployment rate to 4.4 percent by November, the last month figures were available. That rate is still below the national figure of 5.4 percent.
Consumer confidence, which is closely tied to the labor market, last month sank to its lowest levels in 71/2 years.
Falling confidence generally precedes a drop in spending, which means the tough times will last for a while longer. The state's unemployment rate is expected to rise above 6 percent in the second-half of next year.
In Rhode Island, the recession will probably stretch into the third-quarter of next year, says Gary Ciminero, acting executive director of the Rhode Island House Policy office and an economist with the New England Economic Project, a forecasting group. The turn-around, Cimenro predicts, will likely begin as employment levels start to rise in late spring.
Going nowhere
Any hope for economic recovery was dashed on Sept. 11 and no industry was hit harder than travel and tourism.
The first and most immediate impact was air traffic, which was down 28 percent for the month of September at T.F. Green Airport. By October it was off 10.6 percent.
Local hotels, restaurants and other elements of the travel industry reported they lost significant money during the fall. The state scrambled by offering an emergency loan program while the industry debated options during a tourism summit.
The tourist mecca of Newport was hit hard when a dozen tour ships canceled plans to visit. But the city also prospered as tourists from the Northeast canceled flights overseas and took their cars to Aquidneck Island and other New England destinations they considered safer.
But long before Sept. 11, going back to the first of the year, retailers were feeling the effects of tighter consumer spending. By early in the year Bradlees and Montgomery Ward went out of business and Ann & Hope and Apex were forced to restructure operations. Competition forced these less nimble, affordable or hip retailers out of business.
By the end of the year the economic worries were bringing some of the industry's one-time sweethearts to their knees. The Gap posted double-digit same-store sales declines for months, department stores cut fourth-quarter merchandise orders and suppliers restated their earnings outlooks.
With the holidays bearing down on them, most retailers
--
even Wal-Mart
--
dismantled price structures as fast as shoppers could say "70 percent off!" Industry observers predicted holiday sales would be the worst in a decade.
Another disappointment was the technology industry, and EMC Corp. of Hopkinton, Mass. was no exception.
The problem was that EMC's customers put off buying data storage equipment and that impacted EMC's bottom line. In the second quarter, EMC's earnings dropped 75 percent to $109 million, or five cents a share, and by the third quarter, sales had declined 47 percent with the company experiencing its first quarterly loss in more than 12 years, of $945 million.
Belatedly EMC, which employs 700 Rhode Islanders, started reigning in costs. It stopped development plans for its 300-acre plot in Bellingham, slashed $100 million from its research and development budget, and laid off 5,600 employees. The company also reorganized its business units, putting a much greater emphasis on software.
Log Off America
The outlook was even more grim for Log On America, Rhode Island's sole publicly traded Internet company, which was delisted from the Nasdaq National Market in November. The company failed to meet several minimum standards that Nasdaq requires companies to maintain in order to stay listed.
As if that was not enough, the technology industry was also bedeviled by malicious computer hackers who came up with more devious and destructive ways to spread computer viruses and worms
.
The bad computer programs came with strange names such as Code Red, Nimda and
,
most recently, Goner.
The malevolent code found its way into the computers of major companies, schools and government agencies, as well as home users in Rhode Island, and caused countless headaches. For example, the state of Rhode Island shut down many of its Web sites for more than a day in September in order to get rid of the Nimda worm that latched itself onto many state computers.
Such threats did not deter Rhode Islanders from buying computers. Computer ownership among Rhode Island households jumped to 72.3 percent, a sharp increase from the 2000 figure of 58.9 percent, according to a survey by the University of Rhode Island. Lower prices were credited.
The economy also did not stifle local telecommunications companies.
Cable giant Cox Communications expanded its already-enormous presence in Rhode Island by gaining permission from state regulators to build a cable system in four towns where it doesn't have service, Barrington, Bristol, Warren and Foster.
Those first three communities are also served by Full Channel, and they will be the only municipalities in Rhode Island to have a choice between two cable providers.
Cox expects to begin service in Foster by the beginning of next year and once the network in the four towns is completed Cox will provide service everywhere in the state but tiny Block Island.
State regulators also unanimously recommended that Verizon Communications be allowed to enter the $479 million long-distance market in Rhode Island, a critical stamp of approval the telephone giant needed before seeking the final OK from the Federal Communications Commission.
Verizon met the criteria set forth by federal law that requires the company to open up its local telephone network in the state to competitors before it can sell long distance. If the FCC grants its approval, Verizon could begin long distance service by the end of March. Its entry could bring down long distance rates.
A real big deal
In the last recession a decade ago, banking in Rhode Island was one of the biggest casualties. But the local banking industry spent most of 2001 more intent on making deals.
Providence-based Citizens Financial Group nearly doubled its branch network when it paid $2.1 billion for Pittsburgh-based Mellon Financial Corp's retail banking business. The deal puts Citizens in Sovereign Bancorp country
--
Pennsylvania
--
almost two years after Sovereign expanded into New England.
The little fish got a little bigger too. In October FirstFed America Bancorp agreed to acquire rival People's Bancshares Inc. for $72 million in cash and stock. Last month, Westerly-based Washington Trust Bancorp Inc. said it would buy First Financial Corp. in a deal valued at about $39 million.
As for FleetBoston Financial, the nation's seventh-largest player started the year by finishing its acquisition of Summit Bancorp of New Jersey, but ended uncharacteristically quiet. Terrence Murray is retiring as chief executive at year's end -- he'll stay on next year as chairman.
The housing industry also prospered with prices in the Providence metropolitan area, which includes Fall River, up 29 percent over the last four years, according to the National Realtors Association.
But the economy may be catching up to housing. In Rhode Island sales of existing homes in the third quarter rose 2.8 percent, on a seasonally-adjusted basis, from the same period a year ago. In the second quarter the growth was 7.7 percent on a year-to-year basis.
The price for gasoline, heating oil, natural gas and electricity all fell for Rhode Islanders throughout the year after OPEC was unable to continue to control the price of a barrel of crude oil.
Rhode Island's defense industry, which fell into decline with the close of the Cold War, showed some signs of resurgence after the Sept. 11 terrorist attack. Stock prices soared for two of Rhode Island's largest employers, Raytheon and General Dynamics, the parent of Electric Boat.
Lifespan, which is the state's largest employer, generally stayed out of the news. One exception was last month when the hospital network which includes Rhode Island and Miriam Hospitals, unexpectedly voted not to renew the nomination of Barnet Fain as its chairman. He was replaced by Alfred J. Verrecchia, president and chief executive officer of Hasbro.
The bigger they are . . .
Nameplate Rhode Island companies had their troubles too.
Drug companies probably don't make an aspirin big enough to ease the financial pain of CVS Corp. in the last year. Though the nation's second-largest drug store chain continues to report higher sales, its growth pace has slowed and Wall Street has not been forgiving.
The chain in October described a sweeping restructuring plan to close 200 stores, a distribution center and a mail-order facility. CVS also reduced its fourth-quarter per-share outlook to 23 cents from 28 cents, and it cut its long-term earnings growth plan.
But even with the retrenchment the chain this year expected to build 127 stores and next year, it plans to open 155 new stores.
Providence-based Textron, a $13 billion a year global company and Rhode Island's second largest publicly traded company, lost money. It also cut about 7,500 jobs from its work force of 68,000, and saw its stock price fall 24 percent in late September after it had to revise its earnings downward and announce additional layoffs.
While it was selling a portion of its automotive business company officials said it hoped to double the $500 million annual revenues of little-known Textron Systems in Wilmington, Mass. which makes smart bombs, tanks and other equipment for the military.
At least Hasbro began to move out of the red.
After a year of cost-cutting measures and a focus on core brands, Hasbro Inc. in the third quarter delivered its first positive earnings report since last year, making good on its pledge to be back in the black. But sales were lower, reflecting that a new operational plan announced at Hasbro last year has made it a smaller company.
A chemical reaction
Some of the efforts to lay the groundwork for recovery and growth sputtered while others showed promise.
Dow Chemical Co. announced a major expansion in Smithfield that would create several hundred new jobs but it was marred by objections from two highpowered neighbors. Fidelity Investments and Bryant College who complained the plans to create a manufacturing facility did not conform with their more pastoral idea for the neighborhood.
Problems also continued at Quonset Point.
The state Economic Development Corporation last month approved a master plan for the Quonset Davisville Port and Commerce Park Master Plan which leaves the door open for developing a port. Many local residents and environmentalists fiercely oppose developing a container port and even though it has been one of Governor's Almond's major goals it will not happen while he is in office. If it ever happens.
Another Almond goal, to dredge the 17-mile Providence River channel, did make progress and the Army Corps of Engineers is poised to adopt a plan by late next month. Construction could begin by late next year on the $90.7 million project which could also permit more than 20 port terminals and marinas to dredge for the first time in years.
One of the biggest future projects announced during the year is the plans by Seattle drugmaker Immunex to build a $500 million plant in West Greenwich next to a second facility it plans to take title to next month. One complication surfaced earlier this month when rival Amgen bought Immunex but officials stressed the construction project would proceed.
A real shake-up
The news of recession and terrorism could not blot out one quintessential Rhode Island tale.
Newport Creamery, the restaurant chain which makes it characteristic Awful Awful milk shakes, was bought two years ago by Florida businessman Robert Swain. But by June, plagued by financial and management problems, lawuits seeking $400,000 and irate suppliers, it filed for protection from creditors in U.S. Bankruptcy Court.
As it turned out, the company had more than 600 creditors, and about $10 million in debts. Although a consultant was hired in August to help save the company, by September an independent trustee was appointed to either sell or liquidate the company.
The trustee, Andrew Richardson, quickly closed 19 stores, fired 700 to 800 workers, and accused Swain of making $4 million worth of questionable transactions with the Creamery's money. Richardson sued Swain. Swain sued Richardson. The drama built when former gubernatorial candidate Myrth York offered to buy the struggling chain for $570,000.
It climaxed Dec. 6 when Bankruptcy Judge Arthur Votolato threw out York's bid and held an auction. York competed against local Burger King giant Nick Janikies and George Haseotes, whose family built Cumberland Farms.
Janikies won with an offer of $1.55 million.
The Awful Awful is safe.
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