‘This is one of those key moments’

ECONOMIC TRENDS IN THE R.I. ECONOMY | PBN SUMMIT Sometimes the Sometimes the Sometimes the most important most important most important connection is a connection is a connection is a human one. human one. human one.

GOING UP? Thomas Tzitouris, director at Strategas Research Partners, forecasts that 30-year mortgage rates may hit 3.5% by the end of the year, which he said would end the wave of refinancing activity and slow home purchases in 2022.

‘This is one of those key moments’

BY NANCY LAVIN | Lavin@PBN.com

WHILE MANY AMERICANS SEE the COVID-19 vaccine as the barometer of their year, Thomas Tzitzouris is watching a very different event to determine how 2021 will play out.

Tzitzouris, director at New York City-based Strategas Research Partners, named the fate of Federal Reserve Chairman Jerome Powell as the “wild card” for 2021.

In a keynote address during Providence Business News’ Economic Trends Summit on Feb. 18, Tzitzouris explained how differences between Powell’s treasury philosophy and that of President Joe Biden – specifically over whether to try to suppress what is expected to be a steeper yield curve due to inflation and rising interest rates – might lead to Biden ousting the Trump-appointed central bank chief.

If Biden sacks Powell in the third quarter of this year, the bond market will panic, sending the alreadyweakened dollar plummeting down by 60 to 80 basis points in the third quarter, and an even more severe 80- to 100-basis-point decline in the fourth quarter. This bond market “tantrum,” as Tzitzouris described it, jeopardizes not only the financial market but the country’s entire economic recovery.

“This is one of those key moments of the decade we believe materially changes the long-term trajectory of the financial market in the U.S.,” he said.

Rhode Island will be particularly hard-hit. Its situation was tenuous before the pandemic, due to struggles to align the skills of its workforce with the needs of growth sectors and because of credit weaknesses hampering municipal governments. And the continued consequences of structural unemployment and job losses put Rhode Island high on the list of states to see severe economic “deaths of despair” over the next decade, according to Tzitzouris.

Federal stimulus, including aid to the state and municipalities, as well as strong housing-market activity – particularly in mortgage refinancing – offer the state some temporary relief. But these solutions will only temporarily “paper over” the longterm problems underneath, he said.

“If Rhode Island has not found a long-term driver of growth by 2023, we’re going to be right back in the same position we were 12 months ago,” he said.

Tzitzouris refrained from outlining a definitive prescription of how the state might find this elusive driver of growth, encouraging a market-driven mindset.

“Stop trying to pick the successful industry,” he said. “Make the Joe Confessore SVP, Team Leader, Commercial Banking and Wealth Management Joe Confessore SVP, Team Leader, Commercial Banking and Wealth Management Joe Confessore SVP, Team Leader, Commercial Banking and Wealth Management

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RECOVERY

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But others such as the Rhode Island Hotel, Arts & Tourism Grant Program, also through R.I. Commerce, came too late in the season to make much difference, Adamo said.

That the state economic development agency has not yet hired a top tourism official in the nearly 10 months since the former chief marketing officer stepped down is also a concern, Adamo said.

Gim, meanwhile, thought R.I. Commerce should focus on workforce development through education, skills training and even the housing that workers will look for if they move here. The pandemic’s impact on low-wage jobs has been significant, he said, and the state should take the lead in efforts to retrain these workers in industries poised for growth.

Alden Anderson Jr., senior vice president and partner for CBRE/New England, touted the “think outside the box” strategy Commerce Secretary Stefan Pryor and former Gov. Gina M. Raimondo implemented through inventive public-private partnerships and tax credits to major employers as one he hoped to see continue.

Some sectors have held their own, or even thrived during the pandemic. Among them is residential real estate – partly because of low interest rates, Gim said. And home improvement businesses are seeing a boom, too.

Another success story is the industrial sec-

tor, thanks to the huge demand for e-commerce, Anderson said. Evidence of that can be found in the $300 million retail distribution facility proposed for Johnston. Amazon.com Inc. is rumored to be behind the project, and if approved, the facility will be 3.8 million square feet and employ 1,000 workers by its estimated 2023 completion date. Anderson named growing the state’s supply of fully permitted, “pad-ready” industrial warehouse space as an important way to capitalize on this economic shift, noting the lack of available industrial space as a barrier to economic development, and the tight ‘I feel like I’m yelling that supply – the vacancy rate stood at 1% – could get tighter this the sky is falling, but year because there are already deals in progress. in Providence, it really is.’ Another topic, brought up by an audience member,

KRISTEN ADAMO, Providence Warwick further illustrates the Convention & Visitors Bureau CEO and president divide across industries. Advocates say raising the minimum wage is long overdue and especially important right now to help the low-wage workers hurt most by the pandemic. The increase might help a restaurant worker, for example, but would very likely hurt the owners of the restaurant itself, which generally operates on such narrow profit margins that dramatic wage hikes may not be feasible, Adamo said. Tzitzouris also cautioned against dramatic wage increases, which will squeeze small businesses that don’t have the ability to pass on the higher costs to customers. “It encourages the substitution of capital for labor,” he said, adding that a gradual increase to $15 per hour by 2025 would be manageable. n

KEYNOTE

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economy broadly attractive and let industries decide how to expand.”

Generally, Tzitzouris pushed back against government interference. He criticized the federal stimulus packages for “overstimulating” consumer spending and, in some cases, decreasing business investment without creating a needed long-term structural change.

At the state and local level, too, he advocated for a hands-off approach. Instead, he encouraged the state to listen to its business community, which, in his view, is continuing to complain that taxes and other fees make the cost of doing business too high.

High taxes and red tape violate property rights, he said, which, along with human rights, comprise what he believes to be the “secret sauce” to encouraging productivity, and in turn, economic growth.

One area in which state support may be crucial is support for modernizing the housing stock in the southern areas of Rhode Island, which could help attract young professionals fleeing New York City and Boston. Tzitzouris, a Rhode Island native who lives in North Kingstown and commuted to New York before the pandemic, called this a critical opportunity to grow the population, build infrastructure and drive spending to the state. n

TZITZOURIS

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