December 26, 2016
2017 Economic Forecast

CT’s economic malaise likely to continue

Fred Carstensen

As of Nov. 2017, total employment in Connecticut is below the level of jobs that existed in Feb. 1989. That equates to 27 years without any permanent job growth in the state.

Even worse, real output (state GDP) is nearly $15 billion below its previous peak in fall 2007 — the nearly 70 percent loss of nondurable manufacturing, once the state's third largest sector, accounts for essentially all of that shortfall.

And after an anemic recovery in jobs from 2010 to 2016, the state has now lost jobs five of the last six months (as of Dec. 15), even as the nation has continued to add jobs.

Finally, since 2007, only Nevada and Illinois have seen less growth in personal income. Little wonder then that Connecticut is in fiscal crisis resulting from weak tax revenues. Given the numbers, why is anyone surprised?

History often casts a long shadow. Just as Connecticut dug a deep hole for itself by setting aside far too little money to pay for its retirement and health insurance commitments, the state failed to respond to weak job creation after the sharp recession of the early 1990s — a weakness the continuing strong growth in real output and the rapid growth in jobs driven by the tribal casinos masked — or to develop and implement a coherent economic-development vision.

Nor did Hartford do anything to improve its budget process, or to begin to build better data to frame policy analysis. The state drifted.

Now, in the face of a mounting fiscal crisis, working without any dynamic analysis, the Office of Policy and Management and the legislature are making cuts in services and programs that will almost certainly weaken the state's economy further without stabilizing the budget. The "savings" in some cases actually reduce future revenue even more.

And essentially nothing has been put on the table that is likely to restore Connecticut's economic vitality or build aggressively on the strengths created in bioscience or sustained in aerospace.

Indeed, the state just ignored a project whose economic potential is greater than what the state will get in return for providing $400 million in incentives to United Technologies Corp. and $220 million in incentives to Sikorsky, to keep and add thousands of jobs in the state. That ignored project includes a plan by developers to redevelop Stanley Black & Decker's legacy manufacturing properties in New Britain into a state-of-the-art technology park that could include $500 million in capital investment from outside investors. It's a project that would have put Connecticut on the national competitive map, but hasn't received enough support from the state.

There is thus little to argue that private-sector growth will offset the contracting public sector. Indeed, it seems very likely that Connecticut's economy will continue to struggle and the budget crisis will almost certainly continue for years absent a radically changed approach.

Connecticut's economic malaise and poor growth prospects clearly flow from conditions specific to Connecticut; both New York and Massachusetts are growing strongly, whether measured in job creation or output.

Compared to 2007 — before the financial tsunami — Massachusetts has added 260,000 jobs and seen real output grow more than 8.5 percent; New York has added a half-million jobs and real output is up almost 8 percent. Neither state is so dramatically different in taxes, regulations or "business environment" that these usual explanations for Connecticut's malaise suffice.

And then add in California, heavily taxed, regulated and unionized, yet adding more jobs — quality jobs — than Texas and Florida combined. The reality is that Connecticut appears to be a singularity, economically adrift, disconnected from the drivers of job creation and economic growth regionally or nationally.

If true, there is likely to be little economic improvement in its performance in the near term.

Fred Carstensen is an economist at UConn.

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