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Dawn Slowly Breaking
Economist: Despite positive signs, state's recovery will lag
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Business New Haven
11/10/2003
By: M.C.B.
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The state's economy will gradually begin to accelerate during calendar 2004, buoying prospects for modest but steady job growth.
That is the outlook of economist Edward Deak of Fairfield University. Deak presented his five-year forecast for the Connecticut economy last month at a conference of the New England Economic Project (NEEP). His most recent book is The Economics of e-Commerce and the Internet (Southwest Thomson Learning, 2003).
"The early portion of 2004 on the national level will be very important for the direction and strength of the Connecticut economy in 2004," said Deak.
One reason for that, according to Deak, is that job losses in Connecticut have been relatively greater than for the U.S., and the strength of any Connecticut job recovery depends on an expanding national economy.
Despite the continuing rise in real gross state product (RGSP), notes Deak, the state continues to shed jobs - 18,600 in 2003 compared to a year earlier, and down 60,000 from a cyclical peak in June 2000.
Deak predicts that those job losses are likely to continue until year's end. After that, he predicts modest job gains of about 8,200 positions in 2004, accelerating to job growth of about 22,000 positions in 2005. This assumes, he cautions, that national expansion gains momentum.
"Job cuts at the sate and local levels, strong productivity growth, continued outsourcing and a growing volume of imports will mean that few new jobs should be created in Connecticut for 2004," Deak writes.
Another mixed blessing: "A brightening economic outlook should attract some 10,800 new job-seekers into the labor force," reports Deak, "and raise the unemployment rate slightly to 5.06 percent."
Rising interest rates will act as a brake on ballooning home prices. With an expected 11-percent increase in the media sales price of existing homes in 2003 slowing to just 0.5 percent for 2004, further mortgage-rate increases should cut existing home sales to 39,600 and new home permits to 8,658, according to Deak's forecast.
As well, Deak projects that tax increases on the state and local levels, combined with job cuts, will be a drag on the Connecticut expansion for this year and next. Real disposable income rose 4.2 percent in 2002, but is projected to climb by just 1.5 percent in the present calendar year, and by 2.6 percent in 2004.
Overall, the Fairfield economist concludes, the pace of the state's expansion and job recovery will likely lag that of the U.S. by one to two quarters. State and local fiscal drag, higher energy costs, Presidential election uncertainties, as well as sluggish housing and equities markets, will contribute to the delayed reaction.
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