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December 28, 2020 Economic Forecast

CT economic outlook linked to U.S. performance

By Don Klepper-Smith

The National Bureau of Economic Research, the organization that makes the official calls on economic cycles, determined that the U.S. economy formally went into recession in early 2020 after the longest expansion dating back to WWII.

Typically, domestic recessions are precipitated by policy errors involving monetary or fiscal policy, but the current recession was brought on by an “exogenous shock,” an event outside the realm of our economic system that caused a disruption in output.

Real GDP fell at a seasonally adjusted annual rate of 5% in the first quarter of 2020, and then declined 31.7% in the second quarter, the largest quarterly drop since the Great Depression. The economy rebounded in the third quarter.

The outlook for recovery and its timing are a function of when an effective vaccine can be made available to the general public and its safety. Consumer fundamentals will be key in determining the path of expansion with recovery likely to commence sometime in 2021.

The lack of fiscal discipline at the state and local level continues to be an issue in Connecticut. The state now ranks No. 2 in the country in overall tax burden, according to the Tax Foundation.

Given a waning business cycle, high taxes, rising outmigration, and paid family leave initiatives, Connecticut’s business community is now facing major challenges in the worst recession dating back to WWII.

Don Klepper-Smith is chief economist and director of research at DataCore Partners LLC.

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1 Comments

Fred Carstensen
December 28, 2020

While it is true that Connecticut's path to recovery is not independent of the national dynamic, but Connecticut had largely detached from the national economy following the Great Recession. Since 2008, CT has had the worst performing state economy in the nation--actually shrinking more than 9% before a modest recovery--ending in February 2020 about where it was in 2006. Strikingly, all our neighboring states did quite well, well surpassing their previous peaks in both employment and the value of output. Perhaps the most revealing detail is they all enjoyed robust growth in the IT-specific occupations, revealing how they connected with the data-driven, digitally dependent modern economy. CT saw virtually no growth in those specific occupations, arguing that CT had in fact detached from the critical drivers of economic growth. A close look at job creation in CT since 2008 shows that we systematically lost large numbers of high-wage, high-skill (often IT connected) jobs and gained low-skill, low-wage jobs in tourist, hospitality, logistics, and elder care, none drivers of growth or value-creation. So the real question is whether CT had restore its competitiveness and achieve strong real growth in the next decade.

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