The Backyard Economy: Rhode Island

The tiny state of Rhode Island has been hit hard by the slumping housing market, with the highest mortgage delinquency rate of any New England state, according to Moody's

"Rhode Island is not doing well. Basically Rhode Island is in a recession. I think it's pretty obvious to everyone here," said Leonard Lardaro, an economics professor at the University of Rhode Island.

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But its troubles extend beyond the housing market.

In recent years the Ocean State has attracted more financial services jobs to the state, most notably Fidelity Investments. Thanks to problems on Wall Street that growth has slowed. Other large employers include Bank of America and Citizens Financial Group, both which have faced pressures from the mortgage meltdown.

On the bright side, the health-care industry remains strong in America and Rhode Island's top two employers are both in that field.

The state continues to lose manufacturing jobs but at a slower pace, according to, than in the last two years. Manufacturing jobs are benefiting from a weak dollar, which is helping to boost exports.

Rhode Island's biggest challenge remains finding a way to rein in government spending at a time when revenues are declining.

"During the past recovery, we did really spend well beyond our means," Lardaro said. There have been cuts to the state payroll and benefits but no major increase in revenues.

Lardaro suggests that the state is going to need to combine its numerous small local school districts and other forms of municipal government as part of a cost-savings effort.

"We're going to survive this," he said, "but I think you're going to see a very different Rhode Island."