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Good News (Bad News?)
Experts agree: 1997 marked the Connecticut economy's strongest in a decade.
To maintain the momentum, here's what we have to watch out for in 1998
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Business New Haven
12/29/1997
By: Michael C. Bingham
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The future's so bright, they say, that many of the region's leading economists ought to wear shades.
That at least was the theme of two recent events at which noted soothsayers held forth: the Connecticut Economic Conference Board's November 20 annual economic conference program in Hartford, and the Greater New Haven Chamber of Commerce's regional economic outlook breakfast December 5 in Orange.
At the two events, ten economists painted a not-so-guardedly optimistic picture of a Connecticut at last fully in recovery,
a state whose economic indicators have finally fallen in lockstep with the regional and national economies - and a state that must continue on the path of moderating business costs to maintain competitiveness with other state and regions.
In the cautionary words of one economist to state economic-development officials: “Keep your costs moderate and your noses out of it.”
Back in Black
While getting notoriously independent types such as economists to agree can be akin to herding cats, there was a high degree of convergence of opinions at the CECB and New Haven chamber events (which this account will treat as one, since chamber keynote speaker Todd Martin of People's Bank presented essentially the same summary at both meetings).
Areas of agreement included:
• Following hopeful indicators in 1996, Connecticut's economic performance in 1997 placed the state's economy on indisputably solid growth footing.
• Barring the unforeseen, “respectable” annual growth is forecast through 2001 in employment, income and expenditure-related indicators.
• Job gains are anticipated in business services, health care, retail, wholesale, government (which includes the casino industry, since its workers are legally employed by “sovereign” Native American concerns) and construction.
• Job losses will continue in banking, insurance, defense, utilities and aerospace. But the pace of manufacturing employment loss will slacken (142,000 factory jobs disappeared in the state from 1984 to 1996) - in large part because so few are left.
• Limiting factors in state growth are labor availability and quality.
• Concerns are mounting with regard to long-term survival of many recent - and planned - retail openings.
What those factors add up to, agreed the economists, is, in the words of one, “Absent a national recession or radically higher interest rates, Connecticut should show modest gains in employment, output, population and real income in line with national advances.
Enjoy It While It Lasts
That last sentence is significant, because in the 1990s Connecticut - for so long a regional leader in per-capita commercial output, had fallen far behind others in the nation and even the region. The national recession which began in the late 1980s hit us later - and hit us harder. And it has taken the Nutmeg State
longer to crawl out of the hole so long
in the making and foreseen by so few so-called experts.
According to Paul Getman of the Pennsylvania-based Regional Financial Associates, the downsizings, closings and “outmigration” of Connecticut jobs during the recession were followed, not surprisingly, by a corresponding flight of workers to sunnier (literally and figuratively) climes.
The result is what Getman calls “poor demographics” - many workers who remained in Connecticut did so because they were less skilled, older, less flexible and/or less entrepreneurial, than their emigrating peers. And not just workers in mid-career: Getman unfavorable compares recent New England college graduates to their California compatriots. California grads are statistically more likely to start their own companies, while those in New England are “more old-line, more likely to go to work for big corporations.” Of which, in Connecticut at least, there are ever-fewer, especially in the one-time stalwarts of defense, insurance and aerospace. And they offer less job security than they ever did.
Indeed, Getman views the growing labor shortage as “the most obvious obstacle to continued strong growth in Connecticut's economy.” That's because even as the labor force has posted modest gains in recent quarters, it continues to lag employment growth badly.
“Thus,” Getman says, “the state's job growth is likely to slow simply because enough workers cannot be found for jobs that are open. Longer-term, the imbalance between the supply and demand for labor in the state will put upward pressure on wages.”
Still, Getman notes that the state's and region's economies are “at their strongest point in a decade.” To replace the withered manufacturing and defense sectors, Getman sees rapid growth in construction (especially eastern Connecticut), biotech and non-automotive consumer durable goods manufacture.
He warns, however, that state governments should be slow to try to manipulate growth by “targeting” certain industries for growth at the expense of others, a la Connecticut's much-hyped “cluster” initiative. As an example, he offers that “Massachusetts [officials] could not have predicted the growth in their mutual-fund industry.
“States cannot predict what industries will be winners and losers,” he adds. His advice to state economic-development officials: “Keep your costs moderate, and your noses out of it,” he says.
Where Will Workers
Come From?
Job growth is likewise a key indicator for Yolanda Kodrzycki, assistant vice president and economist with the Federal Reserve Bank of Boston.
“Connecticut has had a more gradual recovery than the rest of New England,” she notes. “Vermont, New Hampshire and Maine have already exceeded their employment levels of the late 1980s.”
By contrast, Connecticut lost ten percent of its jobs during the Not-So-Great Recession, and has restored just six percent of them to date. “At the present growth rate,” she predicts, “it will still take two to three years” to complete the recovery.
Nevertheless, Kodrzycki believes that recovery will be completed. And she cites vigorous growth in services and construction as well as tourism and gaming (“I hate to think of what would have happened to Connecticut if you hadn't focused on tourism the last few years,” she says) as promising indicators.
“I see no reason to fear a repeat of the depth of the recession of the early 1990s” in the state and the region, Kodrzycki says, which she attributes to over-building of office space and condominiums. “There's nothing like that taking place now,” she notes.
Neither, she says, is there likely to be another event of the magnitude of the Cold War's abrupt end, which devastated the defense and defense-related sectors in Connecticut. “There's no room in the future for the defense budget to [decline] as much as it did in the last decade.”
Kodrzycki sees continued growth in the state and the region, albeit at a slower rate than in 1997. The main factor, she says, will be an ever-tightening job market. “There's no place to steal skilled workers from” - due in part to Connecticut's continued high cost of
living.
She also cites a familiar refrain in Connecticut - the “unevenness of economic opportunity - there really are no jobs in Hartford, Bridgeport and New Haven.”
And although Kodrzycki notes the recent growth in retail sales - 4.5 percent for 1997 - she offers a cautionary word (New Haven take note): “I am concerned about the extent of construction of retail malls in Connecticut.”
Suffer the Little Cities
But Connecticut's cities are far from unique, says Nicholas Perna, senior vice president and chief economist for Fleet Bank in Connecticut. “If you remove Boston and Manhattan from the equation, all cities in the Northeast look the same,” he says. “What we have isn't a Connecticut cities problem; it's a Northeastern cities problem.”
And as states such as Connecticut and New York come face-to-face with potentially shrinking representation in Congress, the question arises: “How do we leverage what declining political clout we have in the Northeast to revitalize our cities?” asks Perna.
For Connecticut, at least, he has a ready answer: “Take dollars from gaming revenues and establish a state economic development fund to return these cities to vibrancy,” says Perna. “The long-term benefits will be much greater than Band-Aids such as cutting the gasoline tax, etc.”
That concern is seconded by UConn economics professor Dennis R. Heffley: “You should never base a tax cut on a [budget] surplus, because that's temporary.”
Also, while echoing the meaning of 1997's positive indicators, Perna worries that Connecticut's economy is “growing too fast.” And, like Kodrzycki - who recommends focusing state efforts on the redevelopment of Hartford - in an era of state budget surpluses he recommends socking aside economic-development dollars to benefit the cities - and to do so while the getting's good.
Accentuate the Positive
And good it has been, all agree. People's Bank economist Todd Martin characterizes 1997 as the best year for the state's economy since the late 1980s. His own “People's Bank Business Barometer” reflects that, with most economic indicators at all-time highs.
Job growth in the state continues to accelerate, Martin says, especially in services, casinos, retail and construction, and auto sales and housing permits and sales have likewise posted gains over 1996.
On the employment front, says Martin, job growth in Connecticut is at last back in line with the nation at large, and the state's unemployment rate in October was 4.7 percent - same at the U.S. rate. Initial unemployment claims have fallen from a weekly average of more 8,000 in late 1991 to less than half that (3,470 in October) now.
Those numbers are mirrored in many municipal unemployment rates. Many towns in the Stamford labor market area now post jobless rates of less than two percent, Martin notes, while in greater New Haven four towns (Guilford, Madison, Orange and Bethany) have rates between two and three percent, with only the cities of New Haven (5.5 percent) and Meriden (5.4) in excess of five percent.
Ominous clouds on the horizon, according to Martin, include the Southeast Asian currency crisis, the vulnerability and volatility of global equity markets, the continuing potential of military conflict with Iraq, and the dreaded Year 2000 computer glitch, a/k/a the Millennium Bug.
Those are universal concerns. Locally, says economist Peter Gioia of the Connecticut Business & Industry Association, in additional to some inflationary concerns, Connecticut remains “a high-cost state.” And despite reforms in workers compensation and unemployment compensation, taxes are still “way too high, and government costs are seen as very high.”
Still, even Gioia is tempted to don dark glasses for the sunny weather. Improved productivity and investment, increasing penetration my state firms into new markets, growing use of technology and greater availability of credit, he says, are adding up to “improved attitudes and confidence by Connecticut businesses.” BNH
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