PROVIDENCE — The Great Recession wreaked havoc on Rhode Island’s economy, and it took the state more than a decade to claw its way back to the prerecession peak of in-state jobs.
But now, just as Rhode Island is reaching a new high point for payroll jobs and climbing toward the middle of the pack in New England, rumblings of a new recession are raising concern that the long-awaited recovery could soon be undone.
Rhode Island officials say the state is better prepared this time around. But analysts say the state remains at risk of being among the first in and last out of any future recession, and Rhode Island would be wise to tether itself to the powerhouse regional economy based in Boston.
“For a state like Rhode Island that is just getting back to where it was prior to the Great Recession, if another recession were to hit, that could have long-term ramifications in terms of investments by firms and people moving into the area,” said Adam Kamins, senior regional economist for Moody’s Analytics. “It might give rise to a little bit of a vicious cycle.”
Economist Jeffrey P. Thompson, director of the New England Public Policy Center at the Federal Reserve Bank of Boston, said Massachusetts left Rhode Island and other New England states behind by bouncing back from the 2008 recession within a few years and growing at a rapid clip. “The recovery story is really that Massachusetts pulled away from everyone else,” he said.
Rhode Island had a particularly long road back because it had lost so many jobs in the recession, Thompson said. The state shed 40,000 jobs between the peak of 495,500 in December 2006 and the low of 455,000 in August 2009.
But the state finally climbed back to its prerecession peak in February 2018, when it had 496,200 jobs. And the latest figures show Rhode Island reached a new peak with 503,900 jobs in July.
By contrast, Connecticut is still struggling to get back to where it was before the recession, Thompson noted. “Rhode Island is well into positive territory relative to the prerecession peak, it has caught up with Maine, and it is clearly middle of the pack [in New England],” he said.
Thompson said the state had a 1.4 percent job growth rate over the last 12 months — double its annual long-term growth rate of 0.7 percent.
But will that trajectory continue?
Leonard Lardaro, a University of Rhode Island economics professor, said the state economy is worse than it seems and the recovery has been painfully slow. He said the latest job count might get revised downward and represents an increase of just 1.7 percent (8,400 jobs) over 13 years.
“Rhode Island produces recoveries that are pretty much guaranteed not to produce whiplash,” he said.
Lardaro said Rhode Island still has not reached prerecession levels when it comes to resident employment — a measure of how many Rhode Island residents have jobs either inside or outside the state. The latest resident employment level of 533,540 remains below the prerecession peak of 547,368.
Rhode Island tends to be “FILO” (First In and Last Out) of recessions, Lardaro said, arguing that the state has not done enough to reinvent its economy for long-term strength. While the state is not in a recession right now, he said, “We have really downshifted to first gear.”
Lardaro expects a national recession by the end of 2020, and he said Rhode Island might go into recession by the end of 2019 or early 2020. “The good news is the next recession won’t be nearly as severe as the last one, which was the worst since the Great Depression,” he said.
Kamins, the Moody’s Analytics economist, said Rhode Island tends to enter more boom-and-bust cycles than most states, but it’s not as cyclical as tourism-dependent states such as Arizona and Florida.
The odds of a recession are rising amid the mounting trade war between the United States and China, Kamins said. He characterized the trade war as an “unforced policy error” by President Trump’s administration.
“There are legitimate reasons to want to reset the trade relationship with China, but any credible economist would tell you this is not the way to go about it,” he said. “There does not seem to be much sign of de-escalation.”
Meanwhile, the “sugar high” created by the 2017 federal tax cuts is beginning to wear off, Kamins said. “That feeds into the psyche as growth slows,” he said.
If a recession does hit, it will probably be less severe than the Great Recession because there is nothing comparable to the housing bubble that triggered the 2008 collapse, Kamins said. Still, the trade war could provide the “negative shock” that leads to recession, and even a “garden variety” recession would hurt a state like Rhode Island that’s just regaining lost ground, he said.
Kamins said Rhode Island would be wise to plug into the booming regional economy centered in Boston. Being close to Boston’s education and high-tech hub is a distinct advantage, and Rhode Island’s lower real estate prices could prove attractive to Boston’s labor force, he said.
Thompson said national economic activity is concentrated in areas such as Boston, Seattle, and Austin, Texas, so there’s “a lot of wisdom” to connecting Rhode Island to the Boston economy. He said Boston already has helped to bolster the wealth in southeastern New Hampshire.
Rhode Island Governor Gina M. Raimondo has been talking to Massachusetts Governor Charlie Baker about ways to improve rail service between Providence and Boston. But Thompson said improving links to Boston can’t be the whole answer.
States also must develop sound spending and tax policies, invest in their physical infrastructure, and provide residents with high-quality education, Thompson said. “Families desire these services, and firms want to be in places where they can guarantee access to highly skilled workers,” he said.
Scott R. Jensen, director of the Rhode Island Department of Labor and Training, said he has seen no sign of an imminent recession, but he is worried about the trade war and the prospect that national job growth trends will eventually end.
“We were first in and last out last time,” he said of Rhode Island. “So we need to make our economy much more resilient to head winds.”
Rhode Island climbed out of the last recession by adding higher-wage jobs at companies such as CVS and Fidelity and by adding lower-wage jobs at hotels and restaurants, Jensen said. But the state lagged in adding middle-wage jobs in areas such as manufacturing and construction, he said.
The construction sector suffered in part because, unlike Massachusetts, Rhode Island went far too long without making necessary investments in roads, bridges, and schools, Jensen said. “You have to have counter-cyclical investments,” he said.
But now, the Raimondo administration has launched RhodeWorks, a 10-year plan to carry out $4.7 billion in bridge and road work, Jensen noted, and last year voters overwhelmingly approved borrowing $250 million to make repairs to the state’s deteriorating public school buildings.
Also, Jensen said Rhode Island is better prepared for another recession because it has developed new workforce training programs. “If someone is laid off in one area, we can retrain them and find them opportunity much quicker than we were able to do four years ago,” he said.
In addition, the Community College of Rhode Island is helping to make the state’s economy more resilient, he said, noting the technology company Infosys is partnering with CCRI to developer workers for digital jobs.