Revised 2023 labor estimates show R.I. recovered pandemic job losses ahead of schedule

In November, economic forecasters warned that Rhode Island could be waiting till the end of the decade to fully recover its pandemic-era job losses.

Turns out the Ocean State hit its pre-pandemic job count one month later, in December 2023. And the 559,900 employed Rhode Islanders as of March 2024 is the highest in state history, with a corresponding record in the state labor force achieved that same month, according to Rhode Island Department of Labor and Training estimates.

Why the sudden turnaround? The simplest explanation is bad data.

“Being a small state and small sample size definitely can make it more subject to revision,” Michael Lynch, associate director for U.S. Regional Economics for S&P Global Market Intelligence, told state budget crunchers during a State House presentation Monday morning.

The initial, monthly jobs estimates were based on surveys of 1,300 state businesses. The after-the-fact revisions reflect reported actual payroll and tax information, which are more accurate, said Donna Murray, assistant director of labor market information for Rhode Island DLT.

Their comments came as part of the biannual Revenue and Caseload Estimating Conference, which continues through May 10. The updated economic forecast and revenue projections will be used to shape the final fiscal 2025 state budget. 

In November, at the last revenue estimating conference, fiscal analysts expected to bring in $136 million more in revenue than the prior fiscal year. The $5.5 billion income forecast for the fiscal year that starts July 1 was the foundation used for Gov. Dan McKee’s initial $13.7 billion fiscal 2025 budget proposal, released in January.

Better-than-expected labor conditions as of Monday could give state lawmakers even more cushion to work with when finalizing the next year’s spending plan, which must be approved by lawmakers by June 30.  

The biggest upward revision to the fiscal 2024 economic forecast was in the state employment level, up 12.7% compared with the forecast approved in November. However, wage gains and personal income have also improved compared with the prior expectations for the year, up 2.8% and 1.1%, respectively.

“It appears we have moved out of the recovery phase and into a period of job growth,” Murray said Monday.

The comeback includes the hard-hit lodging and food services industry, though just shy of its pre-pandemic job total, has revived 95% of the 32,900 jobs lost when the COVID-19 shutdown occurred, according to DLT data.

However, the sunny economic picture has a few clouds come fiscal 2025, with a “modest contraction” in wage growth predicted to stabilizes around 4% average annual wage growth through the end of the decade, Lynch said.

“The magnitude of this sharp deceleration can be attributed to correction or the reversion of volatility on quarterly wage data following the surge in the first quarter of 2024,” Lynch said.

Neither Lynch nor Murray could fully explain why Rhode Island’s labor force data has changed so dramatically between initial estimates and prior revisions over the last year. 

One potential factor at play: the rise in remote work, which has upended the parallel relationship between employment and jobs numbers and made it harder to make accurate projections since companies self-report their out-of-state workers, Murray said previously.

A few short-term curveballs aside, the state’s long-term economic forecast remains one of slow growth that skirts recession. Annual growth in gross state product is expected to hover around 1.5% through fiscal 2027, while real personal consumer expenditures, which measure consumer spending, are projected to grow by 2% a year over the next three fiscal years, according to S&P’s forecast.

Good news on housing

Amid a declining local and national economy, one sign of improvement: the housing market. Rhode Island, like much of the country, has seen average housing prices skyrocket amid supply-side shortages and strong consumer demand. 

Expect a douse of cold water on the red-hot housing market soon, with the recent bust in pricing appreciation slowing from 11% annual growth in fiscal 2024 to 5.5% in fiscal 2025, according to S&P. Meanwhile, some much-needed new inventory is on the way to satisfy pent up-demand, with 1,300 new housing “starts” by fiscal 2027 or 2028.

There’s good news as well for leaders looking to jump-start Rhode Island’s nascent life science industry and perhaps to meet Gov. Dan McKee’s ambitious goal to raise average personal incomes by $20,000 by the end of the decade. Professional, scientific and technical services jobs, already 18.6% or 5,600 jobs above pre-pandemic levels as of March, will continue to lead job growth over the next year and half, according to S&P.

McKee’s office did not immediately respond to questions about the updated economic forecast.