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Most indicators of Connecticut's
economy look strong going into the year 2000. Employment, income, output, housing permits,
retail sales, tax collections, business starts, and business confidence all ended the year
on a strong note. Although consumers' future expectations showed only a slight dip at
year's end, hints of uncertainty and the unusually long duration of the current
expansion make any predictions of the economy's transition to the new millennium more
fragile than in most years. Yet, except for the tight labor market, there are no major
signs of any real trouble in the year ahead and no recession is foreseen. Barring any
major Y2K disruptions, the State's economy is likely to see continued, if slower
growth.
Sustainable Growth
As with last year's forecast, the trend is for slower, but sustainable expansion.
Employment may increase by only 12,000 in 2000, below the 26,100 jobs gained in
Connecticut through the twelve months from November last year. The labor
market must grow to support further expansion. Connecticut will need to attract as well as
retain that segment of the labor force and population that comes from the younger,
college-educated workforce. Hence there is urgency to the State's campaign "You
Belong in Connecticut."
One rather stunning development in 1999 was the story of the unemployment rate. It
reached an unprecedented and statewide low of 2.1 percent last August, and while the rate
has crept back up to 2.9 percent in November, it has remained the lowest in over a decade
and well below the November national rate of 4.1 percent. Through the third quarter, the
rate declined in all ten of the State's labor market areas.
Strong Consensus
The basis for a positive scenario in 2000 is a strong consensus that Connecticut's
economy will continue to expand. One such outlook is the proprietary New England Economic
Project (NEEP) forecast for Connecticut, for example, prepared semi-annually for the
six-state consortium of business, academic, and government subscribers. Presenting the
NEEP Connecticut forecast, Fairfield University Economics Professor, Dr. Edward J. Deak
anticipates higher growth constrained only by the available labor supply and movements by
the Federal Reserve Bank or on Wall Street.
The Connecticut Economic Conference Board (CECB) in a November annual meeting, heard
from State Street Bank Corporation Chief Economist Fred Breimyer who also foresees
continued economic momentum. The CECB report is due in early February.
The Hartford Area Business Economists (HABE) 2000 annual survey due to be released this
month is likely to be another positive assessment given the state and national indicators
examined. HABE members annually rate current conditions and predict State employment,
income, housing permits, retail sales, and related national variables.
The University of Connecticut's Center for Economic Analysis (CCEA), in its
quarterly review The Connecticut Economy, publishes a coincident and a leading index.
Through the third quarter, the coincident index reached yet another high in 1999. A
reading above the moving average indicated continued expansion. Moreover, a gain in the
leading index also suggested the future economy regaining momentum. The Digest's
monthly coincident index, produced by the CCEA, dropped from its August peak,
but remained above its year-ago level, while the leading index rebounded.
Tracking Success
Key economic variables exhibited the following trends. Employment, as noted already,
rose again last year to 1,678,600 as of November, up 26,100 from one year ago. The
November unemployment rate of 2.9 percent was three-tenths of a percentage point below
that of a year ago, and a full 1.2 percent below the national rate of 4.1 percent. Housing
permits, even when they dipped slightly in October, were still at their second highest
level for the year-to-date in the entire decade. Construction contracts were up in
September more than 31.2 percent from a year ago. Similarly, retail sales were up 5.9
percent through September.
Conclusion
In conclusion, the Connecticut economy in 2000 looks strong. Yet, there are always
downside risks that might temper even the most optimistic of forecasts. The strong 5.5
percent increase in the third quarter Gross Domestic Product (GDP), the total dollar value
of all final goods and services produced in the U.S., might, along with robust stock
market conditions, push the Fed to raise interest rates again in the early spring. This
would be the fourth interest rate hike since the monetary authorities started applying the
brakes to keep the national economy within its preferred three percent growth rate that is
believed to be sustainable without inflation. Only time will tell. In the meantime, the
Nutmeg State, "the land of steady habits," can expect more economic expansion.
The first two phases of the North
American Industry Classification System (NAICS)
implementation are complete, providing a preview of Connecticut's economic
structure under the new industry classification system. (For more background on NAICS, see
the November 1996 issue of the Digest on line at www.ctdol.state.ct.us/lmi.) The
implementation began in August 1998 with the identification of NAICS classifications for
worksites in Standard Industrial Classification (SIC) industries with one-to-one
relationships with NAICS industries. From October 1998 to August 1999, all firms with
employment greater than fifty, as well as one half of the "splits" (worksites in
SIC industries that have been divided into more than one NAICS industry) were surveyed and
assigned a NAICS code. With these two phases complete, 74 percent of all units
representing 86 percent of Connecticut employment have been assigned NAICS codes.
The Connecticut Department of Labor's Office of Research assigns industry
classifications to companies in order to produce economic statistics by industry for the
State. Using first quarter 1999 data, the charts on the next page illustrate
Connecticut's industry structure under the two classification systems. By classifying
the State's employment into twenty NAICS sectors compared to ten SIC divisions, one
gets a somewhat different view of business activity in Connecticut. This effect is most
clearly illustrated in those activities associated with Service industries under the SIC
system. The dominance of the Service industries can be seen as 40 percent of all
employment is classified in this SIC division. Recognizing this and the need to refine the
classification of Service activities, NAICS distinguishes eight "service"
sectors. The largest of these are the Healthcare and Social Assistance sector (14% of
total employment) and the Educational Services sector (10%).
While manufacturing employment has been declining in numbers, NAICS will not
significantly alter the proportion of the State's employment classified in
Manufacturing activities (17% under SIC vs. 16% under NAICS). Also relatively unchanged
proportionately under NAICS are Wholesale Trade, Construction, Mining, and Public
Administration.
Retail Trade continues to be the third largest grouping under NAICS, although the move
of Food Service to the NAICS sector Accommodations and Food Service results in a decline
to 12 percent of total employment. Under SIC, the Finance, Insurance and Real Estate
(FIRE) division accounts for eight percent of total employment. The removal of Real Estate
to the NAICS sector Real Estate, Rental and Leasing has little impact, with Finance and
Insurance still accounting for seven percent of total employment under NAICS.
Transportation was the largest component of the SIC division Transportation,
Communication and Public Utilities (TCPU). Under NAICS, the Transportation and Warehousing
sector is three percent of total employment, while Utilities is only one percent.
Communications, along with publishing from the Manufacturing division and computer
applications and data processing and libraries, make up the important new NAICS sector,
Information, with three percent of total employment.
Although it is only a small part of Connecticut's employment, the Agricultural
group suffers the largest declines under NAICS. This is due to the reconceptualization of
veterinary and pet care and landscaping activities as "services", rather than
agricultural-related activities. Only 36 percent of the employment categorized as
agricultural under SIC continues to be so under NAICS.
The NAICS sector Management of Companies and Enterprises currently comprises less than
one percent of total employment. This sector will undergo the most change during the next
phase of NAICS implementation, which began in October. In addition to surveying and
assigning NAICS codes to the remaining one quarter of the State's worksites, a
supplemental survey form will be sent to all worksites currently designated as auxiliary
units under SIC. (An auxiliary unit is one that performs support activities such as
corporate or warehousing functions for an enterprise.) Under SIC, these worksites were
classified according to the main activity of the enterprise. Under NAICS, these worksites
will be classified according to the business activity of the unit. Those worksites that
are corporate headquarters will be classified under the NAICS sector Management of
Companies and Enterprises.
By September 2000, all worksites in Connecticut will be assigned a NAICS code. During
the following year, the Retail Trade and Construction sectors will be revised to further
refine the industries within these groups. Due to these revisions, publication of
employment by NAICS sector will be delayed until 2002, when 2001 data will be released.
A core group of Aerospace Components
Manufacturers (ACM) has initiated a program to strengthen Connecticut's aerospace
cluster. Through DECD support, a new non-profit 501 C (3) organization has been formed to
manage the group's programs under the direction of a six-member board of directors,
all of whom are company presidents. A two-year plan aimed at achieving worldwide
recognition as a premier source of aerospace components is being financed by a DECD
investment leveraged with over $500,000 in industry support.
ACM's program has four main elements. Each is
planned and managed by teams of representatives from member companies. Highlights of the
Cluster's goals and action steps are:
- progressive manufacturing practices
- workforce development
- business practices for competitive enterprises, and
- special programs.
ACM has already conducted Lean Manufacturing
seminars in collaboration with CONN/STEP, engaged over 70 member employees in
jointly-designed manufacturing skills courses with the Department of Labor, and signed a
purchasing agreement on behalf of its member companies for volume-based discounts on
machining inserts. ACM has retained an association-management firm to manage
administrative, financial, and communication functions with a full-time executive
director. A Special Projects Team has been created to conduct focused promotion projects.
Commissioner James F.
Abromaitis of the Connecticut
Department of Economic and
Community Development announced
that Connecticut communities
authorized 1,023 new
housing units in November 1999,
a 25.2 percent increase compared
to November of 1998 when 817
units were authorized.
The Department further indicated
that the 1,023 units permitted
in November 1999 represent
an increase of 36.9 percent from
the 747 units permitted in October
1999. The year-to-date permits
are down 2.6 percent, from 10,412
through November 1998, to
10,146 through November 1999.
Reports from municipal officials
throughout the state indicate that
Fairfield County with 111.3 percent
showed the greatest percentage
increase in November compared
to the same month a year
ago. New Haven County followed
with a 61.1 percent increase.
Fairfield County documented
the largest number of new, authorized
units in November with 336.
New Haven County followed with
211 units and Hartford County
had 178 units. Stamford led all
Connecticut communities with 163
units, followed by Hamden with 49
and Danbury with 48.
The Connecticut coincident
employment index dropped
for the second straight month
from its August peak with the
release of (preliminary) October
1999 data. The Connecticut
leading employment index, after
absorbing a large drop in September
1999, rebounded with the
October release, recovering fully
the September decline. Nonetheless,
the leading index still falls
slightly below its level twelve
months ago.
The coincident index, a gauge
of current employment activity,
fell between September and
October primarily because of the
increase in the unemployment
rate and the declines in total and
nonfarm employment. The insured
unemployment rate offset
these movements, somewhat, by
falling.
The leading index, a barometer
of future employment activity,
has bounced around considerably
during the last several
years, but has remained in the
same neighborhood since late
1996. This month's release
rebounded from a substantial
month-to-month decline in
September. See the accompanying
chart. The rebound reflects
primarily the large decrease in
the initial claims for unemployment
insurance, which is now at
its lowest level since the period
August to November 1987.
Few analysts predict a downturn
in 2000. Risks do exist,
however. First, the labor force,
which initially declined in the
current expansion, has remained
flat for the past few years. This
trend reflects a potential roadblock
to sustained growth. The
current low unemployment rate
implies that future growth must
come primarily from an expanding
labor force or continued
increases in productivity. It is not
clear from where new workers
will come. Second, if the Federal
Reserve increases interest rates
in their February meeting as
some analysts project, then
sustaining continued growth will
be more problematic at the
national and state levels.
In summary, the coincident
employment index rose from 97.7
in October 1998 to 100.4 in
October 1999. Three components
of the index point in a positive
direction on a year-over-year
basis with higher nonfarm employment,
higher total employment,
and a lower total unemployment
rate. The fourth component,
the insured unemployment
rate, was neutral on a year-overyear
basis.
The leading employment
index fell from 90.1 in October
1998 to 89.6 in October 1999.
Three index components sent
negative signals on a year-overyear
basis with a lower average
workweek of manufacturing
production workers, a higher
short-duration (less than 15
weeks) unemployment rate, and
lower total housing permits. One
component sent a positive signal
on a year-over-year basis with
lower initial claims for unemployment
insurance. The final component,
Hartford help wanted
advertising, was neutral on a
year-over-year basis.
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 Hulya
Varol [(860) 486-3022, Storrs Campus] provided research support.
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