Hartford Business Journal

8 Hartford Business Journal • December 22, 2014 www.HartfordBusiness.com Economy E c o n o m i c F o r E c a s t DOL's Kennedy: Expect modest growth in '15 By Daniel W. Kennedy Connecticut's economic performance in 2014 Based on January-October jobs data, Con- necticut is on-track to add 12,000-13,000 jobs in 2014. The 2014 growth rate is on-track to be .78 percent, less than half the U.S. growth rate of 1.82 percent and behind neighboring states: Mas- sachusetts (1.8 percent), New York (1.42 percent), and Rhode Island (1.53 percent). The slower job growth in 2014 is partly due to the harsh winter, but also the cooling hous- ing market. Turning to seasonally- adjusted data, the harsh winter subtracted 6,367 jobs in the first quarter of 2014, but Connecticut's job growth bounced back in the second quarter adding 9,567 jobs, but slowed to 7,167 jobs in the third quarter. Monthly, Connecticut did add 14,100 jobs between August and October. Connecticut's outlook for 2015 The specter of more government-by-crisis, a jump in electricity rates, and the likely end of low gas prices, portends continued modest growth for 2015. It is expected that real GDP growth will come in at 0.53 percent for 2014, below the 0.94 percent in 2013. The 2015 forecast projects Con- necticut's real GDP growth to rebound moder- ately to 0.81 percent. For the remaining two geo- graphic-based indicators, non-farm employment is expected to increase by 12,675 in 2015, about the same as the expected 12,870 jobs in 2014. Real personal income (PI) is expected to bounce back from its 0.35 percent decline in 2013 to a 2 percent increase in 2014, and is fore- casted to grow at the same rate in 2015 (2.07 percent). Meantime, the unemployment rate (UR) is expected to decline from an average of 7.8 percent in 2013 to 6.7 percent in 2014, but tick up slightly to 6.97 percent in 2015. The budget and the state's economy The most recent state comptroller's report indicated that fiscal year fis- cal 2015 will close with a deficit of a p p r o x i m a t e l y $44.8 million. M e a n w h i l e , the Office of Fis- cal Analysis (OFA) and the Office of Policy Manage- ment (OPM) are projecting budget shortfalls closer to $100 million, which prompted OPM Sec- retary Benjamin Barnes to order a state employee hiring freeze in November, while Gov. Malloy stuck to his no-tax-increase pledge. Malloy, how- ever, did say he will reduce, or cancel some transporta- tion infrastructure projects, curbing that stimulus to the state's economy. Connecticut's economic disadvantage going into 2015 Because many of the jobs Connecticut's economy created over the current recovery are lower-paying, private-sector positions, aver- age hourly earnings fell from $28.08 to $27.96 between 2010 and 2013. However, earnings are on track to recover to above $28 in 2014. Massachusetts's private-hourly earnings are on track to be 8.91 percent above their 2010 level; New York up by 7.91 percent; and Rhode Island, although down in 2014, is up 10.94 percent from 2010. U.S. earnings are on track to be up 2.13 percent for 2014, and up 8.42 percent since 2010. Connecticut and the world economy in 2015 Europe's looming deflation has implications for Connecticut's economy. According to the U.S. International Trade Administration (ITA), 7.3 per- cent of Connecticut's employment, or 102,600 jobs, were supported by foreign investment in 2011, led by the United Kingdom, and three European Union countries: the Netherlands, Germany, and France. Also, according to the ITA, the top destination for Connecticut's merchandise exports in 2013 was France, which accounted for 14.8 percent of the state's exports, followed by Canada and Germany. A promising economic potential that Connecticut carries into 2015 Connecticut suffered setbacks in biophar- maceuticals when Bayer HealthCare left West Haven and Pfizer left New London. Then, in June 2007, Yale University purchased the Bayer com- plex, and in October 2014 Jackson Laboratory opened a new research facility at the UConn Health Center in Farmington. According to the Boston Globe, biotech lab R&D jobs increased by 13.7 percent in Massa- chusetts between 2007 and 2013, but, over that same period, California and Connecticut also added biotech R&D jobs. Both of these research complexes, Yale- New Haven and Jackson Lab-UConn Health Center, follow the science-city paradigm, which generates a dynamic economic ecol- ogy through the proximity of academic insti- tutions and high-tech startups that fosters the transfer of technological innovation from the lab to the market. This model was critical to the success of such science cities as Boston- Route 128 and Silicon Valley. n Daniel W. Kennedy is a senior economist at the Connecticut Department of Labor. Insight Daniel W. Kennedy CT Economic Indicators Actual (2010-13), Estimated (2014), and Forecast (2015) Trough Yr. Current CT Recovery Estimate* Forecast Economic Indicator 2010 2011 2012 2013 2014 2015 Geographic-based Indicators CT Real GDP (% Change) 0.71 -0.92 1.00 0.94 0.53 0.81 CT Non-Farm Employment (Jobs) -18,700 17,200 15,200 14,500 12,870 12,675 Residence-based Indicators CT Real Personal Income (% Change) 1.51 2.00 2.84 -0.35 2.00 2.07 CT Unemployment Rate 9.30 8.90 8.30 7.80 6.70 6.97 * B A s E d o n d A t A F r o m J A n u A r y t o s E p t E m B E r 2 0 1 4 s o u r C E : C t d o L - r E s E A r C h , u . s . B u r E A u o F L A B o r s t A t i s t i C s , u . s . B u r E A u o F E C o n o m i C A n A Ly s i s , A n d A u t h o r ' s C A L C u L A t i o n s ▶ ▶ The specter of more government-by-crisis, a jump in electricity rates, and the likely end of low gas prices, portends continued modest growth for 2015.

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