Grimmer View Of Recession Leads To Glum UConn Forecast
By Dan Haar
August 29, 2012
It's tough to get a break on economic progress in a state where every piece of good news is matched by reports of layoffs and sluggish job gains.
Now we find that even the rotten recent past was worse than we thought — much worse. That means, according to the latest UConn forecast, another two years of lousy gains.
The recession knocked nearly 9 percent off Connecticut's overall economic output, not 3 percent, as previously thought, according to U.S. Department of Labor revisions cited in a new forecast by the Connecticut Center for Economic Analysis at the University of Connecticut. The state's downturn started in 2007, not 2008, and it lasted until the end of 2009, not the middle of that year, we now learn.
The result: Three years later, Connecticut is 11 percent smaller economically than we thought we were — as measured by the total output of goods and services.
We already knew that we lost 120,000 jobs during the recession, and that gains since then have been weak. So, in reality, did anyone think the decline in output during the recession was in the low single digits? Of course not.
Still, the old numbers matter because they guide predictions.
"This report kind of underlines that we took our eye off the ball," said UConn economist Fred V. Carstensen, who heads CCEA.
CCEA now says the state's overall economic output will grow by 0.6 percent above the inflation rate over the next 12 months, followed by a whopping gain of 1.3 percent — well below national forecasts.
This translates to lukewarm job gains of 10,000 to 20,000 over the next two years, according to CCEA. The difference in those two numbers is based on the likely positive effects of big projects such as the expansion of the UConn Health Center and Jackson Lab, which Carstensen supported mightily, along with the Hartford-New Britain Busway, which is federal pork, but it's our pork and we need it.
That lines up more or less with forecasts by other economists, some of whom — notably Edward Deak at Fairfield University — are even more dour.
It's always a mixed picture, but some big numbers seem to be moving in the wrong direction. Just last week, Barron's ranked Connecticut as the lowest state in a measure of state debt and unfunded pension liability — a hole that's 17 percent higher than the state's annual output, the financial publication said.
Fairfield County home values lost 12.9 percent in the 12 months ending this spring, most in the nation, according to National Association of Realtors data reported by Bloomberg News. The reason: thousands of job losses in financial services. And sure enough, the new UConn report shows, Connecticut's vaunted finance, insurance and real estate sector, which accounts for about a third of all economic activity, showed a scary drop in the spring.
How can this be, at a time when Connecticut's total income is rising at a healthy clip? The answer is that income is rising in the hands of fewer people. More on that Thursday, when a report titled "The State of Working Connecticut" documents how typical families are falling behind.
The good news is that other service industries, including health, are still growing in Connecticut, and manufacturing is holding its own. Another bright spot in 2012 is the home construction market, which showed a gain of 33 percent in new permits in the first six months of this year compared with the same period in 2011.
But that's a gain from an anemic year in which permits fell below 3,000, probably for the first time since the Spanish-American War. In all, even the newly enlarged housing construction industry accounts for just about $1 billion, which sounds big but it's only one-half of 1 percent of the state's economy.
By the middle of 2014, we'll still be at least 65,000 jobs short of the total we had at the start of 2008, CCEA's forecast shows.
"Closing this gap will require more than just job creation," the report said. "It requires policies to recover the pride and the employability of persons who have suffered from long-term unemployment."
The report cites two examples: The Mashantucket Pequots' "long and proud history of rehabilitating individuals drawn from the slums of New England," and "Platform to Employment" in Stamford, a public-private effort that offers five-week courses to "reorient" people whose unemployment benefits have run out.
Carstensen adds that it's more important than ever that Connecticut unlocks the $2.5 billion in "stranded" state research and development tax credits in the hands of seven giant corporations — allowing those firms to use the credits toward expansion in the state.
He's been pushing the idea in the legislature for more than two years, with no success. If it becomes clear that the richest state is truly falling behind, that might change.
Reprinted with permission of the Hartford Courant.
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