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July 8, 2013

CT Economy: Better, still not good

Peter Gioia, vice president, Connecticut Business & Industry Association

Connecticut's economy started taking bigger strides forward in the first half of 2013, but a robust statewide recovery is unlikely for the second half of the year, economists say, as employers remain cautious about adding to their workforce.

"We are on a modestly positive track from what had been an extremely disappointing and subpar recovery," said Peter Gioia, vice president and economist for the Connecticut Business & Industry Association. "We are going to see the economy strengthen in the fall and perhaps strengthen in a real fashion in 2014."

While better than 2012, key economic indicators from the first half of 2013 such as new housing starts, employment levels, and state gross domestic product still aren't to the point where economists feel Connecticut is on the verge of an economic boom.

"We've seen this year some fairly brisk job growth, but those job numbers tend to be volatile," said Steven Lanza, executive editor of The Connecticut Economy at UConn. "It is very hard to say, 'I see this trend developing.'"

Employment levels at the end of May, for example, reached their highest levels since February 2009, with 1.65 million residents actively in the workforce.

Key industries like manufacturing and finance, however, are still trending downward, which is holding back the state's recovery, Lanza said. Employment in those sectors must gain steam if the state wants a rosier economic outlook, economists say.

Lack of new housing keeps holding Connecticut back as well, Gioia said. While new housing permits have increased 14.2 percent from 2012, the recovery is only being felt in a few towns, rather than statewide.

Gioia said for every town like West Hartford, which has seen its housing prices and sales increase recently, there are places like his former hometown of East Haddam, where six of the last eight residential home sales by the leading realtor in town were short sales.

"That's not a recovery in my mind. That is a disaster," Gioia said. "We are not going to get there until we have a real housing recovery."

May home sales in Connecticut did experience a slight 2.9 percent uptick, but sales are still down nearly 2 percent for the year, according to the Warren Group.

One thing that is apparent is Connecticut's economic recovery is lagging behind the rest of the nation.

In June, the U.S. Bureau of Economic Analysis (BEA) ranked Connecticut dead last among the 50 states in growth of real gross domestic product in 2012.

Last year, Connecticut was the only state in the nation whose real GDP decreased.

"Right now, I am not sold we've got a new resurgence in the rate of recovery," Lanza said.

On the positive side, the state has now recovered almost 50 percent of the jobs lost from the Great Recession.

Connecticut lost 121,200 jobs from March 2008 to February 2010, and has gained back 58,600 positions, according to the state Department of Labor.

That's not necessarily a sign of an impending boom, but at least steady progress, said Fred Carstensen, director of the Connecticut Center for Economic Analysis.

"The private sector continues to noodle along," Carstensen said.

Connecticut actually cleared a big roadblock earlier this year with the legislature's passage of the state budget, Carstensen said.

Based on initial spending and revenue projections, Carstensen was worried the two-year budget would impose significant program cuts and taxes that would have impeded economic growth.

"The budget is modestly good. It is not imposing significant cuts," Carstensen said. "At least in the short run, the state budget is not going to do the type of damage we thought it was going to do."

Based on all the economic data so far this year, the best bet for the rest of 2013 appears to be more inconsistent trend lines, with key indicators continuing to slowly move in a positive direction, Gioia said.

Metrics like energy prices are dropping, which could lead to a quicker recovery, much like a return in the housing market, Gioia said. But other uncertainties cloud Connecticut's economic forecast such as the reversal of the payroll tax cut, federal sequestration, and healthcare reform.

"There are a lot of wildcards out there," Gioia said. "We are going to continue to struggle. It is not going to be all positive."

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