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December 28, 2020 Economic Forecast

With vaccine, CT, U.S. economies will flourish in 2021

Photo | Yehyun Kim/CT Mirror Members of SEIU 1199 rally outside the state Capitol, demanding personal protective gear for frontline workers.
By Pete Gioia

There are those who are saying the sky is falling and our economy, both state and national, are doomed for years. They should be ashamed of themselves.

We will face a tough road back to get to where we were as of Feb. 2020, but we surely will surpass that and more, likely by the end of 2021.

Pete Gioia, economic advisor to the Connecticut Business & Industry Association.

Connecticut is doing better than most other states bolstered by our better COVID-19 response and strong defense and financial services industries. Few states are in the position of seeing one of their most important employers (Electric Boat) forecast to double in size in the next six years. I guess the latest doom-and-gloom report from UConn missed that!

Where Connecticut stands now

Our nonfarm job number shows 1,600,200 people employed (1,376,400 private sector) as of the October labor report, a 0.9% month-over-month change. Yes, we are down 5.3% year over year, but at a pace of 14,000 to 21,000 jobs added per month we should erase that deficit by the end of the first quarter of 2021.

Weekly hours worked are only down slightly compared to 2019 and average weekly wages are up vs. 2019. The October unemployment rate was 6.1%. Our real GDP is only slightly down vs. the same period of 2019 and our per-capita personal income is up vs. the second quarter of 2019.

We added a healthy 14,000 jobs in October, 17,000 jobs in September and 21,900 jobs in August.

Our largest labor market areas in Hartford and New Haven are our best job-growth areas with strength in manufacturing, retail, professional services, education and leisure/hospitality.

Inflation is quite low at 1.4% (1.2% in New England). Meanwhile, exports, which were up 3% in the second quarter but down 24% year over year, should fully recover in 2021. Our housing market is strong with starts up 71%.

Tourism remains a challenge with hotel occupancy down 35% year over year and gaming slots down 20%.

Where CT is going

The data points to Connecticut recovering all jobs lost during the pandemic by the end of the first quarter of 2021, barring a return to a hard lockdown. Defense, manufacturing and financial services should continue to grow. Education and health care will remain solid on jobs and return stronger with a vaccine.

Retail, leisure and hospitality will struggle but come back after a widely distributed vaccine is in effect. Tourism-related services will probably need a year or more after that.

Trade will also return probably a year after a vaccine is in effect. Air travel is needed to maximize this area.

The pandemic has both supply shock and even more demand shock effect. Demand shock is hitting services particularly hard as in-person services are down. The positive effect is an increase in home improvements and auto sales. More much-needed fiscal stimulus has stalled in Congress but should pass under President-elect Biden.

Real GDP was up 33.1% in the third quarter at an annual rate but still down 3.5% year to date. Consensus is the U.S. GDP will rise 3% in the fourth quarter, decline 3.3% overall in 2020, and grow 4% in 2021. Personal per-capita income is up vs. the second quarter of 2019. Personal consumption was up 1.4% in September, the fifth straight month of gains.

Overall, I’m positive but so much depends on being able to see more normalcy with a vaccine.

Pete Gioia is economic advisor to the Connecticut Business & Industry Association.

 

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1 Comments

Fred Carstensen
December 28, 2020

Let's remember than in February 2020 Connecticut's economy was still 17,000 jobs below its previous peak and in terms of the real value of output about where it was in 2006. CT had the worst performing economy among all states since 2008--by a significant margin. 48 states exceeded their previous peaks in both jobs and real output; only one other state besides CT failed to achieve recovery, but even there the shortfall was small compared to CT's decline.

Yes, Connecticut will benefit from defense contracts and the expansion of Electric Boat, but let's put that in the context of CT being by far the worst of any state in its balance of payments with Washington. The vast majority of states get more dollars back from Washington than they send there; a few states break even of have deficits. Buy only Connecticut has a per capita deficit over $2000 and gets a measly $0.82 back on every dollar it sends to Washington. Electric Boat and other major contractors can not, by themselves pull CT out of the malaise that now afflicts our economy.

Finally, this commentary conveniently ignores the fiscal projections from OPM and OFA, released in late November. Both project fiscal deficits aggregating more than $7 BILLION through FY24, reduced to $4 billion if we spend the entirety of the rainy-day fund. But OPM and OFA make quite optimistic assumptions, minimizing expenditures and maximizing revenues. Deficit could easily exceed $10 BILLION , and result in profoundly damaging cuts to public services, municipal aid, higher education, and supports for NGOs.

Connecticut faces daunting challenges that aggressive policy initiatives and strategic investments could meet. Do we have the political leadership to do pursue such initiatives?

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