Worst joblessness in nation staggers R.I.

Hard times replace a steady boom

PROVIDENCE - Even more than the gleaming new condos or the boom of restaurants and stores in the heart of this old mill city, the regular WaterFire festivities are held up as a signature of the rise from industrial decay, drawing jubilant crowds and their money. But as thousands thronged the bonfire spectacle this month, some noticed a troubling, if subtle, absence: shoppers.

"We were slammed with people, but nobody had any bags in their hands," said Eli Fernandez, who works at a cellphone kiosk in Providence Place, a vast mall that opened in 1999 as a centerpiece of Providence's renewed prosperity.

There are other clues of something amiss. In residential neighborhoods around the city, a litter of "For Sale" signs. In nearby West Warwick, a young waitress pawns jewelry to make ends meet because tips are declining. To the south, in the mill village of Peace Dale, a food pantry for the needy sees a near quadrupling in the number of families enrolled in its emergency meals program - from 261 enrolled a year ago to 905 now. "Every day there's new people," said Susan Gustaitis, executive director of the Jonnycake Center. "It's not slowing down."

Rhode Island, just a few years ago celebrated for job and productivity growth, is suddenly reeling - with some indicators showing the worst economic climate in 17 years. According to figures released yesterday by the Bureau of Labor Statistics, unemployment ballooned in September to 8.8 percent, the highest rate in the nation, and the state's annual job-loss rate was un equaled. Even Providence, the capital city that has drawn national headlines over the past decade for its downtown renaissance, is looking at a housing collapse and retail contraction.

"It's real bad, man," said Joel Diaz, who works at the Providence Place phone kiosk with Fernandez and who knows several people who have lost jobs, faced foreclosure, or both. "Some are just going crazy now because of it."

It is a precipitous fall for a state that three years ago boasted the highest job and productivity growth in New England, and it has set off a flurry of blame. Public officials are scrambling to retool economic development policies and defend the state's image, contending that Rhode Island has been pulled down by national and international currents; the sudden downturn reflects temporary growing pains, they say, as the state tries to move from manufacturing to an information- and innovation-based economy.

Some economists have a dimmer view, however, and say the decline, while aggravated by the nationwide housing bust and credit crunch, had its seeds sown at home.

"In the 10 years that I have lived in Rhode Island, we have had an economic development policy that has been directed toward failure," said Edward M. Mazze, a professor of business administration at the University of Rhode Island and a former dean of the business school. "We have virtually no sector of the economy with any prospect of great growth."

Leonard Lardaro, a URI economics professor, tracks the state's economy monthly using an index that weighs 12 factors, including retail sales, housing permits, and unemployment claims. In January, only one of the 12 showed improvement over the previous year, the worst performance since the 1991 recession. In June, and again in August, the scale hit zero.

"I never thought that would happen. I'm still amazed, and I'm scared," he said. "Because that was August, and you and I both know what has happened since August."

Rhode Island's plunging employment doesn't even tell the whole story of economic pain, particularly as it is felt among residents already struggling to get by. Cheryl Cordeiro, a waitress in Warwick, said she used to routinely clear $200 in tips on weekend overnight shifts. "As soon as the bars closed at 2, we'd have a line out to the parking lot," said Cordeiro, a 39-year-old from Cranston. Now she makes $100 on a good Saturday night.

Cordeiro's boyfriend, who works in landscaping, has also lost income. Over the summer, the couple pawned her engagement ring for $400. "That just kind of caught us up," she said.

Last week, Cordeiro stepped out of a jewelry shop framed by a pair of empty storefronts in downtown West Warwick, where she had just sold some silver pieces. Clutching the cash in her hand, she said she had to hurry to JD Byrider, the used car franchise, to make a payment by 5.

In a neighborhood nearby, fliers advertised a so-called short sale on a three-bedroom home - its list price of $129,900 is less than what the seller owes - reflecting the now familiar tale of the housing crisis. In Rhode Island, it is hitting harder, economists said.

Housing prices in the state, although consistently lower than those in Massachusetts, rose faster during the boom. The median sale price for a single-family home doubled from 2000 to 2005, from $137,000 to $273,000. But Rhode Island is a lower-wage, lower-education state, compared with its New England peers. It lags behind Massachusetts in the diversity of its economy and the number of higher-wage, knowledge-based jobs. Such factors made the state more vulnerable to a steeper crash, economists said.

During the boom, construction and related trades flourished, and people spent money drawn from their home values. But many people obtained mortgages they could not afford. When prices fell hard - in August, the median single-family sale price was $232,653, the lowest for the month in six years, according to the Warren Group - the economy here proved especially fragile.

"When you have a more vulnerable economy, a shake-up" like this in the housing market can rattle the state quickly, said Michael Lynch, an economist who tracks Rhode Island and New England for the firm Global Insight.

The state's leaders say a new Rhode Island will emerge from the turmoil. Instead of trying to entice large manufacturing plants with incentives, they talk now about nurturing tech startups, luring biomedical companies, encouraging entrepreneurs, and developing a skilled workforce.

"We're not going to miss this boat," said Saul Kaplan, executive director of the Rhode Island Economic Development Corporation, which is promoting a plan for a knowledge- and innovation-based economy. "I think it's working. We're moving the economic needle in the right direction, and we're going to come out of this economic downturn in a position of strength."

State and local economic leaders are distributing glossy brochures and thick binders detailing the course ahead. They tout the "buy-in" on the part of the governor, legislators, and local officials, and they talk about the collaboration between the state's public and private educational institutions, healthcare centers, and business leaders.

That coordination is new, said Laurie White, president of the Greater Providence Chamber of Commerce. "Everybody is really joined at the hip, if you will, and working in lockstep to really drive these new engines of our economy," she said.

Rhode Island has advantages: "We're blessed with natural beauty, history, culture - lots of similarities to Massachusetts and Boston - it just has not been well-managed for a long time," Governor Donald L. Carcieri said in an interview at his State House office. "So we're trying to bring some discipline, some management, and then execute on that."

Some companies are doing well in the state, and there are new projects that suggest jobs are not merely disappearing. Last month, Carcieri announced a plan for an off-shore wind farm and a regional turbine manufacturing facility that could yield 800 jobs, and a major natural foods distributor revealed plans to relocate from Connecticut and bring 150 jobs.

Rhode Island's location between Boston and New York is an asset, and its size has created a nurturing, collegial, entrepreneurial climate, said Stephen Lane, who cofounded the medical device developer Ximedica two decades ago and now employs nearly 150. State officials are finally moving "from lip service to discernible action" for improving the business climate, said Lane, who considers the job-loss rate a sign of temporary "purging" in a transition to a new economy.

"Rhode Island has been holding onto a lot of marginal companies," he said. "That's not a criticism; it's a reality. There's only so many white-metal casting corporations you can keep."