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October 24, 2022

Bordonaro: Parsing through economic data and political narratives

Greg Bordonaro
By Greg Bordonaro

As we head into the final few weeks of the 2022 gubernatorial campaign, the economy will continue to be a central focus.

And both major candidates — Gov. Ned Lamont and GOP challenger Bob Stefanowski — have their own spin on recently published economic data.

Stefanowski has tried to take advantage of new U.S. Bureau of Economic Analysis (BEA) data that showed Connecticut’s second quarter GDP shrunk by 4.7%, the second worst decline in the nation.

“The economy is in a free fall,” Stefanowski told a gaggle of reporters gathered at a press event at Bruegger’s Bagels in New Haven on Oct. 4, just a few days after the BEA report came out. He also noted that Connecticut’s second quarter 2.2% personal income growth was last in the country, well behind the U.S.’ average 5.8% growth.

Bob Stefanowski
Gov. Ned Lamont

Lamont administration officials countered that the economic news wasn’t all bad. For example, the BEA revised its first quarter GDP estimate for Connecticut from a 1.4% decline to a 5.5% increase, one of the strongest growth rates in the country.

And over the past 12 months, Connecticut’s real GDP growth of 1.2% ranks 24th out of 50 states.

So, what’s the reality? It’s hyperbolic to say Connecticut’s economy is in free fall, but the state’s pandemic recovery does trail the nation’s. Nationally, second quarter GDP declined by 0.6%, compared to Connecticut’s 4.6% decline.

As of August, Connecticut had only recovered 87.9% of the 289,400 jobs lost during March and April 2020, when the pandemic temporarily shut down significant parts of the state’s economy. The U.S. economy fully recovered pandemic-related job losses in July.

It’s likely we are in, or headed in, a moderate recession, mostly driven by macro economic factors like supply chain issues, inflation, slowing demand from interest rate hikes, and the continuing workforce shortage, which remains more acute in Connecticut (the state reported 113,000 job openings at the end of July) compared to other states.

A bit of good news is that the state’s labor participation rate is up slightly, hopefully signifying more people will reenter the workforce in the months ahead.

What’s harder to discern — and where political spin comes into play — is how much Connecticut’s short- and long-term economic policies and strengths and weaknesses are contributing to the current economic environment. High costs of doing business and living, high taxes and lack of affordable housing are all determinants to growth and have certainly impacted the state’s slower recovery.

However, Connecticut did become more attractive, particularly to New Yorkers looking for a more suburban lifestyle, coming out of the pandemic.

Dwindling COVID relief

There are a few other key points to keep in mind.

One overlooked factor that may be contributing to an economic slowdown is the end of COVID-relief funds. Connecticut’s economy (private companies, nonprofits, etc.) and the state budget were significantly buoyed by billions of dollars in emergency federal funds dispersed at various points during the pandemic.

For some companies (like recipients of Paycheck Protection Program loans) that money has been long spent. For other industries, COVID funds are just beginning to dry up.

In recent Hartford Business Journal interviews, hospital and theater executives warned of pending challenges as their COVID money runs out. Many hospitals experienced operating losses in fiscal 2022. Some — including the state’s largest health system, Yale New Haven Health — have recently announced layoffs as they face a number of challenges including reduced patient demand for certain services.

Meanwhile, theater execs warned that some performance venues could close as COVID funds run out and attendance struggles to return to pre-pandemic levels.

And the 30-month deferral period for companies that received pandemic-related, non-forgivable U.S. Small Business Administration Economic Injury Disaster Loans ends this month for the earliest borrowers, meaning the bill is coming due.

The loan program allowed businesses to borrow up to $2 million at 3.75% interest for 30 years. As of April 27, the SBA logged 38,000 Connecticut loans under the program, amounting to more than $4 billion. It won’t be a major hit to most companies, but it’s a few less dollars businesses will have to invest in people, plant or equipment.

Another thing to consider: Government economic data isn’t always reliable, particularly when initial estimates are released. We saw an extreme case of this with first-quarter GDP estimates in Connecticut.

At the state level, the Department of Labor often revises its monthly jobs estimates. For example, the DOL revised its employment numbers in each of the last six months, initially underreporting the total new jobs created in the state from February through July by 2,300.

Journalism is often described as the first draft of history. The same can be said for some government economic data, which often relies on surveys of households and business establishments.

The science isn’t always perfect. That being said, our economy and the world in general function on data and data analysis, and reliable or not, politicians will always try to spin numbers to fit a certain narrative.

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