Connecticut Manufacturing - Is There Reason for Optimism?
By Noreen Passardi, Economist

For the period of Connecticut's history prior to the 1960s, manufacturers provided nearly half of the State's total nonfarm employment. By 1985, manufacturing's share had dropped to 26 percent, and by 1998 to 17 percent. Many Connecticut manufacturers restructured over the years in response to national recessions that affected the automobile, gas, oil, and steel industries, as well as to reductions in government defense expenditures. New ways of doing business were implemented, such as ordering supplies "just-in-time" to free up costly inventories, separating out the administrative functions from the manufacturing process, and replacing outdated equipment with the latest technology-laden computer aided equipment. Such cost saving measures made the difference between a firm closing or surviving through uncertain times, and they definitely made a difference in productivity. The installation of hi-tech equipment in production processes may have lowered the ratio of labor to capital, but it also raised the level of skills of labor, shortened production time, and thus, increased output.

This article looks briefly at manufacturing employment indexes at the national and state levels back to 1975. It then focuses on changes in Connecticut's employment and wage levels between 1992 and 1998 for 19 manufacturing industries. Employment and wage data is tabulated at the 2-digit and 3-digit Standard Industrial Classification (SIC) levels for select subsectors.

Employment Trends: Connecticut and U.S.

As the chart on the front page shows, Connecticut's manufacturing sector employment began to fall in 1981, lagging the national decline by a year, and has continued downward since, with the exception of 1984 when employment rose for both the Nation and the State. In 1997 and 1998, modest rises finally ended twelve consecutive years of job losses in the sector. Between its peak employment in 1980 and 1999, manufacturing jobs in Connecticut declined by 39 percent.

Nationally, manufacturing employment during the last quarter-century peaked in 1979. However, recessions in the early and mid-1980s and early 1990s were followed by recoveries that produced gains in manufacturing employment during 1984, 1987-1989, and 1994-1998. Nevertheless, manufacturing jobs in the nation declined by 2.6 million or 12.4 percent between 1979 and 1999.

Employment: 1992 and 1998

By the end of 1998 (the latest year for which the detailed data are available), a total of 28,600 manufacturing jobs were lost since the end of Connecticut's last recession in 1992. The Transportation Equipment (SIC 37) sector alone accounted for 20,400 of these, over 70 percent of total losses and 29 percent of its 1992 employment level. Measuring & Analyzing Instruments (SIC 38) followed, accounting for 5,600 lost jobs, again 20 percent of the total and nearly 21 percent of its employment level in 1992. The burden of job loss could have deepened if not for six industrial sectors realizing job gains totaling over 4,600 jobs over the time period. Fabricated Metals (SIC 34) added the most jobs, over 1,900; Printing & Publishing (SIC 27) followed with over 1,200.

Many industry sectors that show a net job loss over the period have had significant job gains in many of their subsectors (see chart above). Motor Vehicles & Motor Vehicle Equipment (SIC 371) actually added almost 1,600 jobs since 1992, easing somewhat the overall impact of job losses to the sector as a whole. The Electronic & Other Electrical Equipment industry (SIC 36) may have lost over 1,000 jobs as a whole, but glimmers of hope twinkled (pun intended) within this sector too, as Electric Lighting and Wiring Equipment (SIC 364) added 900 jobs since 1992. Metalworking Machinery & Equipment (SIC 354) did its share to mitigate job losses by adding nearly 1,000 jobs, but significant losses in other subsectors lend doubt that employment stability will be seen any time soon in that sector. Employment increased for Lumber and Wood Products (SIC 24). This industry is highly seasonal/cyclical, influenced by weather, the schedules of loggers for the cutting of trees (usually 5 year cycle), export trade of lumber, and domestic wholesale and retail trade of wood, so it may have been isolated from the economic activity that affected other industries over the years. Significant job growth in Commercial Printing (SIC 275) carried the sector as a whole since 1992, but watch this sector for further effects from Internet competition.

Wages: 1992 and 1998

Manufacturing remains a high paying industry, with wage growth rates that are evidence of having a highly skilled labor force. As shown in the table on page 4, most sectors (2-digit level) exceeded the entire private industry annual average of $41,101 in 1998, and over half of all the 2-digit level sectors had wage growth rates that exceeded that of all private industries (26.5 percent) in the 1992-1998 period. Measuring, Analyzing, & Controlling Instruments (SIC 38), driven by scientific research and development, shows growth rates of 70+ percent in two subsectors. Annual earnings in Tobacco Products (SIC 21) were the highest at $139,590 in 1998.

As the table here shows, on a more detailed 3-digit industry level, jobs in the Photographic Equipment and Supplies (SIC 386) sector were paid a whopping $119,644 in 1998, an increase of 70 percent since 1992. Other top paying subsectors included Drugs (SIC 283), Industrial Organic Chemicals (SIC 286), and Pulp Mills (SIC 262).

Future Outlook

Further losses are generally expected to continue in total manufacturing employment over the next couple of years. However, an optimistic perspective is that many sectors may be approaching job stability, as witnessed by significant job increases in many subsectors. Another good reason for optimism is that, since 1992, 124 new manufacturing firms started up in eight different industries. Bristol awaits the opening this year of a manufacturing plant, FCT Electronic, maker of electronic connectors, which will be the company's first in the United States. Innovators have made the State one of the leaders in patents per capita, and Connecticut's highly skilled and productive work force stands ready to turn ideas into goods. Educational programs have been in place to keep workers' skills in sync with the hi-tech capital equipment needed in a dynamic economic climate, and a single-factor manufacturing tax based solely on receipts has been proposed, thus eliminating corporate payroll and property taxation. Yes, there is reason for optimism.

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Industry Clusters
Manufacturing Progress

The second chapter of the "Industry Cluster Progress Report" details the achievements of the Manufacturing Resource Center that was created at the recommendation of the Manufacturing Cluster. The Center's mission is to increase the use of progressive, lean manufacturing and advanced technology among smaller manufacturers. The center is part of CONN/STEP.

Thus far, CONN/STEP has assisted more than 75 manufacturers initiating lean activities, sponsored and planned additional  basic awareness seminars with over 175 attendees, and supported the Aerospace Components Manufacturers (ACM) cluster by supplying a lean manufacturing field engineer. The Center's initial contact with over 1,400 small Connecticut manufacturers resulted in 264 projects and approximately 1,100 technical-assist activities.

Program development actions include initiation of a "continuous-improvement audit" that uses nationally renowned lean consultants, initiation of a process for tracking impact metrics for all lean projects, including inventory, lead time, work in process, space reduction, and quality and production improvements. Two additional field engineers were hired bringing the total team to seven.

Finally, the Center established working relationships with 20 regional and 10 national consultants, and provided Lean 101 training using instructors from the NIST (National Institute of Standards and Technology) to enhance their promotion of lean techniques to the Center's clients. The Center is continuing its efforts with NIST to assist aerospace suppliers.

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HOUSING UPDATE
Year-to-Date Permits Up 3.5 Percent

Commissioner James F. Abromaitis of the Connecticut Department of Economic and Community Development announced that Connecticut communities authorized 508 new housing units in February 2000, a 1.9 percent decrease compared to February of 1999 when 518 units were authorized.

The Department further indicated that the 508 units permitted in February 2000 represent a decrease of 36.7 percent from the 803 units permitted in January 2000. The year-to-date permits are up 3.5 percent, from 1,267 through February 1999, to 1,311 through February 2000.

Reports from municipal officials throughout the state indicate that New London County with 40.0 percent showed the greatest percentage increase in February compared to the same month a year ago. New Haven County followed with a 20.4 percent increase.

New Haven County documented the largest number new, authorized units in February with 124. Fairfield County followed with 96 units and Hartford County had 91 units. Hamden led all Connecticut communities with 32 units, followed by Middletown with and Waterbury with 14.

Towns and municipalities are required by the Census to report new residential permits issued monthly. Housing data then gets compiled and is transmitted electronically from Bureau of Census to DECD. For example, if one permit is issued for a condominium (50-unit) building, then 50 units are recorded in that town.

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Benchmark Revisions Dampen Advances in Coincident Index

The Connecticut coincident and leading employment indexes were revised with the release of (preliminary) January 2000 data and now reflect the recent benchmark revisions in labor market data. The coincident index reached a new peak in the current expansion, and surpassed for the first time the February 1989 peak of the last expansion. The leading index was also higher over the past year, beginning the new year with the same level as July 1998.

The coincident index, a gauge of current employment activity, continues its strong performance over the past four years, albeit with a somewhat muted growth recently due to the benchmark revisions. See the accompanying chart. The leading index, a barometer of future employment activity, continues, in contrast, to dance along a plateau established in late 1996. The benchmark revisions had minor effects on the path of the leading index. In sum, the Connecticut economy continues to experience a healthy expansion with no signs of an imminent reversal of the good times. The leading index, however, has remained in neutral for over three years. We will continue to monitor movements in the leading index, as it provides a signal on the future of the Connecticut economy.

The benchmark revisions lowered, on average, total employment (household survey) over the past year and a half. That change raised the total unemployment rate, since the total employment and labor force figures help determine the unemployment rate. As a result, the 2.1 percent unemployment rate in August 1999 that many analysts viewed with some skepticism was revised upward to 3.0 percent. Moreover, the adjoining July and September unemployment rates of 2.6 and 2.7 percent were also raised to 3.1 and 3.1 percent, respectively. We do note, in passing, that the lower (2.2 percent) unemployment rate and the accompanying higher total employment (1,673,000) in January 2000 seem somewhat out of line with prior data and add some strength to the coincident index in January.

In summary, the coincident employment index rose from 96.2 in January 1999 to 102.8 in January 2000. All four components of the index point in a positive direction on a year-overyear basis with higher nonfarm employment, higher total employment, a lower total unemployment rate, and a lower insured unemployment rate.

The leading employment index rose from 89.5 in January 1999 to 90.7 in January 2000. Three index components sent positive signals on a year-over-year basis with a lower short-duration (less than 15 weeks) unemployment rate, lower initial claims for unemployment insurance, and a higher average workweek of manufacturing production workers. Two components sent negative signals on a your-over-year basis with lower total housing permits and lower Hartford help wanted advertising.

SOURCE: Connecticut Center for Economic Analysis, University of Connecticut. Developed by Pami Dua [Economic Cycle Research Institute; NY, NY] and Stephen M. Miller [(860) 486-3853, Storrs Campus]. Stan McMillen, Kathryn Parr, and Jingqui Zhu [(860) 486-3022, Storrs Campus] provided research support.

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