Hartford Business Journal

BOOK OF LISTS 2021 | 7 Does Connecticut have a future? By Fred Carstensen Director of the Connecticut Center for Economic Analysis; Professor of Finance and Economics, UConn's School of Business C onnecticut is in deep trouble. Very deep trouble. From 1997 to 2008, Connecticut arguably had the strongest economy in the nation, growing in real terms 3% compounded annually; on a per capita basis expanding 30% faster than the national rate. But since 2008, Connecticut has had the worst state economy, shrinking 9.1% before a modest recovery; in Feb. 2020, before the pandemic, the state's economy was below its 2006 level, and employment 17,000 under its previous peak. In contrast, New York, Massachusetts and Rhode Island enjoyed robust growth, well exceeding previous peaks in output and employment. Such a sharp contrast in performance has multiple drivers, but most salient has been Connecticut's disconnect from the data-driven, digitally-dependent modern economy. The clearest evidence was the nearly 25% contraction in the data-intensive finance/insurance sector and the virtual absence of growth in Connecticut in IT- specific occupations. Neighboring states all enjoyed robust double-digit growth in precisely those occupations, consistent with strong connections with the modern IT economy. The pandemic hit the nation and Connecticut hard; what now looks like a third wave of infections, hospitalizations and deaths may pull the nation into recession as J.P. Morgan forecasts. Because of our reliance on tourism and hospitality, Connecticut suffered disproportionately, but recovery has been marginally better than the region and the nation. Even so, full recovery is a long way off. Looking further ahead, the Office of Fiscal Analysis and Office of Policy and Management forecast aggregate deficits in fiscal years 2021 to 2024 of more than $4 billion after spending the $3 billion rainy-day fund. But these are actually optimistic projections, assuming robust economic growth, minimal growth in state commitments, and a willingness to spend the rainy-day fund down to zero. Absent aggressive initiatives, deficits will likely be higher, leading to massive program cuts and layoffs in fiscal years 2023 and 2024. The Connecticut Center for Economic Analysis' long-term forecast points to that possible outcome: absent significant federal support and/or effective state policy initiatives, state recovery may take a full decade, to 2030. Connecticut has one clear advantage: a robust rainy-day fund that can cover deficits for at least two years. Avoiding immediate cuts will help sustain employment and thus state tax revenues. If the state immediately implements aggressive economic-growth policies it could significantly mitigate if not eliminate projected fiscal year 2024 deficits. There are obvious initiatives that would quickly impact Connecticut's economy and state revenues. Legalizing recreational marijuana could generate 17,000 new jobs and nearly $1 billion in state revenue in six years; permitting online sports betting would generate new revenues; adopting tax incentives to incentivize development of hyperscale cloud data centers might attract billions in investments; redeveloping Sikorsky Memorial Airport would be a powerful regional economic driver. One critical deficiency the state should address: our dismal balance of payments with Washington, D.C. Connecticut has the worst record of any state, getting a pathetic 82 cents of federal money back for every dollar it sends. This translates into a per capita deficit over $2,000; no other state suffers a deficit above $1,000 per capita. A focused, multi-agency initiative to secure more federal funding could deliver hundreds of millions in federal money in the near term. Connecticut faces daunting challenges, but it also has the resources and locational advantages to shape its own future. Do we have the will? With vaccine, CT, U.S. economies will flourish in 2021 By Pete Gioia Chief Economist of PGEcon LLC, Pete Gioia Economics T here 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. 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. ECONOMIC FORECAST

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