The Mathematics of Sinking
Struggling Rhode Islanders are certainly right to hope for signs of recovery, but URI Economic Professor Len Lardaro’s take on the latest results of his Current Conditions Index for the state is counterintuitive at best:
… The index registered a value of 8 for February. …
The index measures the behavior of 12 economic indicators, with a value of 50 being neutral. Anything above 50 signifies expansion, while anything below that signifies contraction.
In January, the index registered a 17, but was largely driven by 2 of the 12 indicators — manufacturing wages increased and new claims for unemployment insurance were down slightly.
The February score returns the index to the level it saw for most of 2008, which Lardaro calls a positive sign.
“The process of recovery begins when we start to consistently match or exceed each prior month’s economic performance,” he said.
For months, we have been within spitting distance of maximum contraction, as measured by this method, and that indicates that we’re matching or exceeding performance? The index measures each month against the same month in the previous year, so the missing information is whether February 2008 also saw a downturn. According to Lardaro’s historical table, Rhode Island began contraction in August 2007, following a largely neutral 2006, so we’re into compounding declines, at this point.
If 50 is neutral — that is, no growth or contraction — Mr. Lardaro must go outside of his index to suggest that we’ve hit bottom as long as we’re below that middle line. In most folks’ understanding of the image, the bottom doesn’t have a downward slope.