PBN summit: A soft landing for economy that’s still ‘fragile underneath’

PROVIDENCE – The likelihood of a recession, once thought inevitable, will be forestalled or fail to materialize, at least within the next 12 to 18 months, as near-term federal spending and increased debt continue to keep the economy afloat.

That was the analysis presented Wednesday morning by Thomas Tzitzouris, head of fixed income research at New York City-based Strategas Research Partners and the keynote speaker at Providence Business News’ Economic Trends Summit held at the Providence Marriott.

Tzitzouris predicted that a so-called “soft landing” will include a slowdown in growth in the first half of the year, followed by an interest rate cut by the Federal Reserve in June and other cuts in the following two quarters.

But inflation will remain “sticky.” Several economic indicators are now at levels that most experts would define as statistically recessionary. A local economy that seems at first glance “robust on its surface” is in reality “fragile underneath,” he said.

Nationally, the average household’s credit card debt as a percentage of disposable income has climbed to 6.8% as of December. And the multi-trillion-dollar federal debt isn’t helping, Tzitzouri said.

“Not only are we borrowing too much, but we are also borrowing at a more expensive rate,” he said. “When you try to plan your way to prosperity you actually make the system more volatile.”

Labor demand in Rhode Island should remain strong, “exceeding supply for years to come,” he said. But Rhode Island continues to be challenged by a lack of housing, an aging workforce, lower birth rates than the national average, and stagnating wages when adjusted for inflation.

And while state officials may celebrate the state’s historically low unemployment rate, an endlessly tight labor market has its consequences. The same is true for the rising real estate prices, which is beneficial for property owners but hammers affordability.

New business applications in 2023 Rhode Island fell 2% year over year, far below the 10% national figure.

Since 2019, job growth in the state has been flat and will remain so until 2030, said Marianne Raimondo, dean of the Rhode Island College School of Business.

The state must prioritize education and career training initiatives to create a pipeline of skilled workers to fill the jobs of the future, Raimondo said.

Otherwise, “businesses can’t grow. Low unemployment is fantastic, but that means companies have positions that aren’t being filled,” she said. “Going forward, that is something we need to problem solve.”

Recent legislative reforms enacted last year should ease the housing market, said Thomas Sweeney, principal owner of Sweeney Real Estate & Appraisal. But that might not happen soon.

“We need a reliable and sustainable plan for developers to understand what they can and cannot do,” he said. “It takes time [for public investments] to work their way into the system.”

And while 6% interest rates might be unfamiliar to first-time homebuyers and startup businesses looking to borrow money, it’s actually more in line with historical averages.

“We are just getting back to normal,” said Sweeney.

The panel discussion also included William C. Tsonos, Bank Rhode Island CEO and president; Kristen Adamo, president of the Providence Warwick Convention & Visitors Bureau; and Elizabeth M. Tanner, secretary for the R.I. Executive Office of Commerce.