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Rocky Waters or Smoother Sailing?
Industry diversification has helps the state's economy keeps its head above water
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Business New Haven
11/11/2002
By: Mimi Houston
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"And now, a word about the local economy."
If those words make you a bit nervous when you hear them on the local news, you're hardly alone. And if you start your day with a review of the latest stock market quotes, it can be pretty hard to swallow that chocolate doughnut - even with an extra cup of coffee.
But investors and business people in southern Connecticut can take heart. The news may not be quite so grim as you think.
"Right now in the local area it seems like kind of a good news, bad news situation," says Jim Thorson, a professor in Southern Connecticut State University's Department of Economics & Finance.
"I am cautious," Thorson acknowledges. "I still think things could get worse before they get better. It hasn't been a predictable time. We're down one month and up another. This recession is unlike any other I've ever seen. It certainly is different, and I can not pinpoint the reason why."
In general, though, Thorson believes we are doing okay, and he has the reasons to explain why.
"Forty-six percent of employees in New Haven are in health care, retail or manufacturing," he continues. "It's true that manufacturing is weak right now - down about five percent [in year-over-year employment] - but health care is relatively strong because there is a big nursing shortage. And that's good news for that part of the employment sector."
It's due to those three major industry groups that Connecticut is currently in better shape than much of the nation.
"I don't see any one industry as saving our economy," says Thorson. "Connecticut is diversified enough that we don't have to put all our eggs in one basket. That's why our unemployment rate is lower. When you're in a state where one industry dominates and that one industry goes bad, everything falls."
Just as Thorson sees a strong future for the health care industry, he's confident that retail sales are staying stable, even in the wake of the much-publicized Ames department stores shutdown. Again, the troubled area remains Connecticut's changing world of manufacturing.
"Right now manufacturing accounts for one-sixth of employment in Connecticut," Thorson relates. "That number may grow a bit smaller, but it will always be there."
Thorson says that the most pressing issue facing the manufacturing industry in the state is the loss of even more jobs. But he's quick to say the industry is not about to lose its still-powerful presence in the makeup of Connecticut's economy. He points to lower demand for durable goods - big-ticket items like cars, boats and major appliances - and the fact that exports from the state are down as reasons for its current unhealthy condition.
"Consumers are still buying," Thorsen explains, "but they're being more choosy about where they are buying things from. They aren't really looking to buy things that are made in Connecticut; they want to buy where they can get the best prices."
It's the fact that consumers are buying as much as they are that has Thorson a bit perplexed. He has a hard time explaining the current and steady rate of consumer spending.
"It has surprised me," he laughs, "how strong consumer confidence really is. Even in the past couple of years - with the economy really quite soft - consumer confidence has been quite strong. It may be a response to uncertainty, with stocks being so soft right now - a sense of, 'If I buy something, at least I'll know what I have.'"
But he can't attribute the soft economy exclusively to the stock market. Surprisingly, he says the current state of Wall Street doesn't play the major role some might think.
"The stock market will have an affect on the economy," he acknowledges, "but the direct effect is really fairly minimal. It does have an affect on the psychology of consumers, causing them to be less likely to buy those big-ticket items."
So what does run the show? These days, Thorson advises Connecticut residents to keep an eye out for some of the usual suspects.
"Among the first indicators is the state's tax revenue," Thorson warns. "Connecticut's tax revenues are down, but if retail picks up, it increases."
Next in line is an old, familiar face - oil.
"If we get involved in a situation with Iraq and oil prices go up, that can certainly cause consumer confidence to fall. We could see oil prices go up 20 percent if we do get involved with Iraq, and that's above the already expected rise in cost."
And what's the other thing to keep an eye on?
"Real estate sales," Thorson continues. "Right now sales are down in the Hartford area for the month of September, and we're all watching. Is that going to happen here?"
Barbara Pearce, CEO and president of H. Pearce Co. Realtors in North Haven, is watching as well. She's also seen the signs of a very unusual recession, in terms of its relationship with the real estate industry.
After all, doesn't the real-estate market reflect what's going on in the rest of the economy?
"Usually, and in general," agrees Pearce. "Normally the real-estate market is a leading indicator in the economy. But lately the real estate market and the stock market have been counter-cyclical. When real estate is up, the stocks are down.
"A lot of that has to do with things like Enron, and there are factors working with real estate right now," says Pearce. "Interest rates are so low, and that's definitely helping the real estate market. And, the stock market is doing so badly that real estate has become an alternative investment."
Pearce says the second-home market is a booming example.
"People are buying [second homes] with cash," she says. "They're taking it out of their stocks, and they're taking it out of their 401(k)s. I think as the market goes up, more people will increasingly see real estate as an investment."
But investment may not be the only reason for the surge in second homes.
"People are buying for their retirement," explains Pearce. "There's been a national move toward nesting accentuated by [the terrorism attacks of last] 9/11."
In fact, Pearce says real estate is so popular an investment today that it's getting harder for those who choose it to find property to invest in, even as more individuals and families become qualified buyers.
"We don't have the supply," states Pearce. "Real estate is no longer unaffordable to a lot of people it used to be out of reach of. But we just don't have the supply."
The dearth of property dilemma holds true for the commercial market as well.
"In New Haven County, it's not the economy that is slowing sales," explains Pearce. "Right now there is no backlog of commercial buildings. There is a building going up right now in New Haven [the 60,000-square-foot One Audubon office building being developed by Acorn Properties, headed by former Starter Sportswear entrepreneur David Beckerman], and it's the first new building in more that ten years."
But Pearce says even today's real estate success story is not immune to an economy that could get worse. And she keeps her eye on the consumer confidence index, which could have a devastating impact even here.
"If you don't have a job," she plainly states, "it doesn't matter that interest rates are at five percent."
But Pearce maintains a optimistic view of what's in store not only for the real estate market, but for the rest of the economy as well.
"I think the economy will not get a lot worse," she says. "I think it's going to get better within the next six to 12 months, and if that happens, real estate will just sail along with it."
Sailing right along on a similar tack, at least so far, will be the retail sector. While mega-chains like Ames and Super K mart seem to be experiencing their share of equally large problems, the smaller neighborhood stores so many of us like to shop in, where we are known are thus far holding their own for the most part.
"I think business is good in New Haven," affirms John Isaacs, co-owner of Barrie Ltd., a staple for shoe buyers located amidst the Yale University campus at Elm Street and Broadway.
"Obviously it's location-based," he continues. "If your buildings are in nice shape and you have decent parking and good neighbors - those things are important. We've been here since the 30s" - 1934, to be exact - "and this neighborhood had gone up and down. We haven't seen the effects of the [Broadway] refurbishment until this year."
Isaacs is referring to the multi-million dollar renovation/rejuvenation the area enjoyed that began in the mid-90s, a joint initiative of Yale and the city. Now, he says, smaller businesses whose history runs deep in the area are profiting from the presence of national retail chains such as J. Crew, Urban Outfitters and Origins.
"We get a lot of customer draw from the nationals that are here," Isaacs explains. "If you're next to a J. Crew you wind up picking up business because they walked by you."
But even without such friendly neighbors, Isaacs has taken steps to keep the retail waters calm in his historic business. Along with owners and managers of other stores in his Broadway district, Isaacs is part of a retail support system called the Broadway Merchants Association, an active community that works together to tackle legal and city relations.
"We market," says Isaacs. "We advertise the neighborhood, help with legal and city relations - any ordinances, policies, cleaning and crime issues. We handle sidewalk usage and right of way-any problems and issues that we all deal with as neighbors.
"The way we work is to focus on this neighborhood," says Isaacs. "We have a lot of different players doing different things. We try to be the voice of the merchants as a common unit."
Isaacs, who spoke for many of his retail neighbors as a vocal, and ultimately successful, opponent of the city's late-1990s Long Wharf mall proposal - does point to one factor that definitely contributes to the immediate economy of the area.
"Yale is obviously a big player, being the primary property owner," he states. "They own 60 percent of the retail property in the Broadway district. They're in charge of who's here."
The Broadway Merchants Association has been active for almost a decade now, and Isaacs clearly sees this as a contributing factor for the area's mostly steady success. He points to other merchants associations throughout the city, and feels they are an important resource for small-business owners.
"We've stayed pretty constant," he relates, "and that's definitely helped by Yale. They're responsible for dues collecting - they match a portion of everyone's [membership] dues."
Isaacs says the dues collected are put to use in part by holding special events aimed at increasing shopper traffic and in the area and continuing the tradition of the area's anticipated Christmas display.
All these things, plus finding the right advertising formula for your particular business, are things Isaacs keeps in his arsenal to navigate his own business through the tricky waters of today's economy.
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