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Mid-Year Review
Winners and losers, sweethearts and stinkers so far in 2000 — and what to watch for in the second half
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Business New Haven
6/12/2000
By: Michael C. Bingham
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Whatever century you think the year 2000 falls within, the fact is we're already nearly halfway to 2001, when the debate will become entirely moot.
More to the point is, what do the region's and state's economies look like at the year's halfway point, and what are the trends we'll look back on in six months as the key forces shaping, making and breaking fortunes for 2000?
Without question the most momentous event of the first half-year was the April 14 NASDAQ meltdown, which sent the inflated valuations of many New Economy stocks tumbling and gave investors the first real wakeup call that not all technology companies are created equal.
In the wake of the stock-market tumble, New Haven high-flyer CuraGen Corp. (whose stock, let's not forget, was mired at $5 just one year ago) plummeted from a per-share high in excess of $128 to less than $35 this month.
The genomics firm is hardly alone. Branford drug-discovery firm Neurogen Corp. has lost half its market valuation from an early-March high of more than $50 per share. And DSL.net, the fast-growing New Haven Internet company, has receded from a late-winter high above $30 to less than nine recently.
Is the honeymoon over? Not necessarily. But investors in Connecticut and beyond have by now surely learned that there is a ceiling to market valuations, whether a company has both feet in the New Economy or is an old-economy dinosaur.
Employment
Unemployment in Connecticut continues at historic low rates - 2.3 percent in March, a full percentage point lower than in March 1999. During that 12-month period non-farm jobs rose by 27,500 statewide, according to the state's Department of Labor, while total employment increased by more than 34,000 over the same period.
The biggest employment loser continues to be manufacturing, which shed 5,100 jobs statewide from April 1999 to April of this year. 1.9-percent decline.
To forestall inflation, the Federal Reserve last month raised the Federal Funds rate by 50 basis points (0.5 percent). Recent increases in both wages and prices reflect both the well-documented shortage of skilled workers - and an economy whose temperature is rising. The Fed hopes that higher interest rates will lower the temperature of the economy without giving it a severe chill.
According to the DOL, nearly all employment indicators this spring reflected positive trends over the previous year: the unemployment rate, lower initial claims for unemployment insurance, and higher average work week for manufacturing production workers, and increased Hartford help-wanted advertising.
One component which sent a negative signal on a year-over-year basis was total housing permits, which declined in April by 10.2 percent from March - and was down nearly 25 percent from April of 1999. New Haven County did lead the way with 185 new housing units authorized in April, buoyed by a bustle of building in North Haven (22 units) and Hamden (20 units).
Where There's Smoke…
While these days the biotechnology/biosciences industry sector in Connecticut gets all the hype - even as the less-heralded software industry generates the lion's share of new jobs - the importance of the Finance, Insurance & Real Estate (FIRE) sector in Connecticut dates back nearly two centuries.
And despite the industry reconfigurations that attended the early '90s recession in the state, Connecticut remains a key center for insurance (Hartford) and reinsurance (Stamford), well situated between the financial center of the world (New York) and the mutual fund hub of the U.S. (Boston).
The FIRE industries were some of the biggest job-losers during Connecticut's recession, and it remains nearly the only major employment sector yet to regain all the jobs lost during the downturn. Indeed, on a year-to-year basis Connecticut's FIRE industry was a net annual employment loser until 1997, when the Swiss Bank (now UBS) relocation to Stamford in September of that year proved they key event returning FIRE to job-creating mode, where it remains today. From April 1999 to April of this year, the industry added 800 jobs statewide for a total of 140,200, half of which are in the insurance industry itself.
That's the good news. However, as the Federal Reserve moves to tighten monetary policy, many core banking, mortgage and insurance sectors find themselves constrained by interest-rate sensitivity. Thus the market valuations of some Connecticut-based financial companies have been driven lower, prompting concerns over potential takeover vulnerability.
Moreover, as competition heightens and becomes more global in all financial sectors, investments in technology throughout the FIRE sector have made this industry the most productive in terms of dollar output per employee of all industry divisions in the state. Today FIRE in Connecticut is creating broadened revenue streams with fewer workers - assisted by technological tools from ATMs to electronic communications networks (ECNs).
The Death of Manufacturing?
Up until the 1960s, manufacturing companies provided nearly half the state's non-farm jobs. By 1998 (the latest for which detailed figures are available), that number had fallen to just 17 percent - a consequence of demographic shifts, absolute reductions in defense spending and the growing availability of cheaper labor beyond the state's borders.
Unlike in other sectors, the recession is scarcely to blame: Indeed, Connecticut manufacturers have shed 28,600 jobs since the end of the recession in 1992. Hardest hit among these was the transportation equipment sector, which lost 20,400 jobs - more than 70 percent of the state's total.
This illustrates how the job-cutting ax has fallen unequally within the manufacturing sector. Indeed, some subsectors of the industry actually grew in employment between 1992 and 1998.
Fabricated metals has added nearly 2,000 jobs over the six-year span, followed by motor vehicles and motor-vehicle equipment (1,600 jobs added) and printing and publishing (more than 1,200 new jobs). If not for subsectors such as these, the manufacturing employment picture would have been even uglier.
No one expects the downward trend in manufacturing employment to abate significantly in the years ahead. But there are reasons for qualified optimism. An historic leader in innovation, Connecticut remains second in the nation in per-capita patents, and the relatively high skill levels of the state's workforce remain ready to turn those ideas into goods.
That process, however, will unfold in an increasingly high-tech - and high-cost - manufacturing environment, and for the state's economy to reap long-term benefits, both the public and private sectors will need to find the will to get serious about job-retraining and continually upgrading worker skills.
Cities with a Future?
While the rest of the state hums along seemingly without much fuss about anything beyond making money, the favorite pastime of municipal, regional and state bureaucrats as well as others who dabble in the public-policy arena continues to be finding ways to make Connecticut's largest cities more "competitive."
In 2000, this remains the tallest of tall orders: In New Haven, for instance, 40 percent of residents over age 25 lack even a high-school education, and thus seem unlikely candidates to start dot.com companies.
So, what to do about the recalcitrant cities? Study them to within an inch of their lives, it seems. Last year Baltimore consultant Sandra Hillman earned $100,000 telling New Haven leaders that their city was fine, but its image was not, so earlier this month a freelance writer, also from Baltimore (a coincidence, apparently), was hired for $80,000 to craft a marketing message more palatable to City Hall, Yale and the shadowy Regional Leadership Council (which foot the bill for the effort).
Ernst & Young's Michael Buckley knocked the socks off some business leaders by telling them that a movie theater, farmer's market, antiques bazaar and assorted other trifles would transform the Elm City into Xanadu.
In January 1999, the Governor's Council on Economic Competitiveness & Technology gave birth to something few New Haven business people have yet even heard of: the Initiative for a Competitive Inner City (ICIC) targeting Hartford, Bridgeport, New Haven, Waterbury and New Britain.
As part of the plan, United Illuminating CEO Nathaniel D. Woodson was selected to head a "New Haven Advisory Board" charged with drafting a recently unveiled "inner-city business strategy initiative."
The strategy recommend putting most economic-development eggs in a few targeted "clusters," following the well-worn path of the cluster initiative pursued by the state's Department of Economic & Community Development under the Rowland administration. As defined, the New Haven clusters are:
• "Knowledge-based" businesses, incorporating biotechnology, IT, higher education and health services;
• Arts, entertainment and tourism;
• Manufacturing, including metal manufacturing and food processing;
• Commercial services, including companies that provide operations support to businesses and institutions;
• Construction, including related services such as architectural firms and landscaping services; and
• Retail/distribution industries.
Using projections from the Connecticut Economic Resource Center, the same study also provided a 20-year employment forecast for the "cluster" industries (see chart). The biggest projected gainers were health-related industries (55.4 percent employment growth) followed by higher education and arts/entertainment, up 17.7 and 17.6 percent, respectively. Construction (projected to lose 26.5 percent of current jobs) was the biggest loser, followed by manufacturing (down 9.3 percent) and, surprisingly, biotechnology (down 3.2 percent).
Recommendations to advance the fortunes of these industries are many and varied. Among the most controversial are sure to be proposals to publicly fund so-called smart (i.e., housing high-bandwidth Internet connections) buildings to better lure IT and bioscience companies from more distant climes.
Whatever the plan's merits, inasmuch as scarcely 35 city companies were interviewed in preparing the New Haven ICIC study, its authors face a long and hard selling process to real, on-the-ground New Haven businesses with the most at stake in the city's economic future.
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