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July 18, 2022

Bordonaro: Is CT headed toward a recession? Predictions aren’t easy.

Greg Bordonaro

Is Connecticut in, or headed toward a recession?

It’s a question that seems to be on every business leader’s mind, especially as they plan for the rest of this year, and start looking ahead to 2023.

Currently available data doesn’t give us a clear answer to the recession question, and economic indicators are sending somewhat conflicting signals.

While inflation and interest rate hikes could signal a slow down, June’s U.S. jobs report showed employers added 372,000 positions last month, a strong number that may have eased some recession fears.

The national unemployment rate stands at 3.6%.

Connecticut’s economy so far in 2022 added 12,700 jobs through the month of May. During the same time period in 2021, the state grew its workforce by 25,800 jobs, so clearly the pace of hiring has slowed.

Meantime, Connecticut’s real gross domestic product decreased 1.4% during the first quarter of 2022, according to the U.S. Bureau of Economic Analysis. Another quarter of declining growth would technically mean the state is in recession.

It wouldn’t surprise me if that’s how things play out, but given the continued hiring trend across the U.S., I think it’s unlikely Connecticut or the U.S. are headed toward a steep downturn similar to the Great Recession.

But I’m no economist, so to probe this topic further I asked three local experts for their thoughts on the recession question.

Here’s what they had to say:

Fred McKinney, Co-founder of BJM Solutions, an economic consulting firm

Fred McKinney

McKinney said with inflation over 8% nationally, and the Federal Reserve reversing the money supply spigot, the U.S. economy is heading for a slowdown and a recession soon.

However, it’s not an easy prediction, he said.

McKinney said he looks to the nonprofit business research group The Conference Board’s economic indicators index to get a better understanding of where the economy may be tracking.

“For the past two months the index has been declining largely because of declines in the S&P measures of consumer confidence, and interest rate increases,” he said. “These indicators can conflict with coincident and lagging indicators like unemployment rates. Help wanted ads are still common throughout the state across many industries.”

Connecticut’s economy is likely to track closely with the national economy, he added, and he’s keeping a close eye on the housing market, specifically how long houses stay on the market.

“In 2022, the average time on the market is about 80 days from listing to closing,” he said. “If this begins to creep up, as I expect it will, I think that will be an important indicator of when the Connecticut economy will be clearly heading into recession.”

Fred Carstensen, Director of the Connecticut Center for Economic Analysis at the University of Connecticut

Fred Carstensen

Carstensen is never shy about highlighting Connecticut’s dismal economic performance in recent decades.

He notes that Connecticut’s economy still hasn’t fully recovered from the Great Recession and that the state actually experienced negative growth rates from 2008 through 2015.

As a result, Connecticut’s economy was in weaker condition than many other states heading into the pandemic, making it more vulnerable to a recession.

However, he predicts both the state and national economies may only see a slowing of growth rather than a recession, as both the job market and aggregate demand remain fairly robust.

He said June’s strong U.S. jobs report modestly pushes back the threat of a recession, but Connecticut remains at some risk.

“For Connecticut, the challenge is that it has lost many of the jobs that tend to be steadier — e.g., finance and insurance — while gaining more volatile jobs in hospitality and tourism, which are dependent on discretionary spending. To date households seem to be ignoring the threats of inflation and spending/traveling, but if a recession does loom, job creation falls or goes negative, discretionary spending is what gets cut.”

Donald Klepper-Smith, Economist, DataCore Partners

Don Klepper-Smith

Klepper-Smith, the former economic adviser to Republican Gov. M. Jodi Rell, said he thinks the data already shows we’re in recession.

But the National Bureau of Economic Research probably won’t make that call anytime soon because it would affect the midterm elections. The same thing happened in 2008, he said.

“I had the data showing we went into recession in December 2007,” he said. “We got the official call 13 months later after the 2008 presidential election.”

The odds of a recession are 75%, Klepper-Smith said, based on his analysis of economic data.

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