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Connecticut's economy
showed strength last year,
a trend that is viewed as likely to
continue in 1998. Employment,
income, housing permits, business
starts, retail sales, and
business and consumer confidence
were all up, and continued
growth in these economic indicators
is forecasted for the year
ahead and the near-term horizon.
Upward Trends
On this page in
March of last year, the improved status
of Connecticut's economy was
outlined in some detail. Since that
time, the University of Connecticut's
coincident index of economic activity, a
barometer of current
employment activity, has
exhibited healthy growth; and the
leading index, a barometer of
future employment activity,
maintained a modest upward
trend. The optimism for 1998 is
based in part on continued
expansion of employment and the
drop in the unemployment rate.
Through October 1997, the state
had added nearly 30,000 jobs
over the year and the unemployment
rate was down 1.1 percentage
points from its October 1996
level, and was identical to the
national rate of 4.7 percent. The
employment picture was further
brightened by job gains even in
manufacturing. In October, the
Digest noted that the gain in
manufacturing employment was
the first increase in 13 years.
Per capita income in Connecticut
continued to rank the
State as tops in the nation. The
income data indicate healthy
potential for growth in demand
for consumer goods and services
measured in such statistics as
retail sales. Moreover, the accompanying
multiplier effects in
other sectors of the State's
economy translate into future
expansion for capital plant and
equipment. Such investment
spending is likely to see a boost
from strong consumer demand.
The performance of retail
sales - at least through midyear
1997 - was reassuringly strong.
The 7.0 percent growth on a
year-to-date basis gave a boost to
sales and use tax collections, up
7.4 percent for the fiscal year
through September last year.
Housing permits, which
constitute a major and leading
economic indicator because of
their association with demand for
consumer durable goods, were
also higher in 1997. Interest
rates may be a moderating
influence if they should rise. Yet
the strong performance of statewide
housing permits is always
an encouraging development.
Business starts, as measured
by both registrations with the
Secretary of the State and the
Department of Labor, were both
up through September of 1997.
This trend is seen as likely to
continue as business responds to
healthy income growth and
consumer demand.
Forecasts Of Future Trends
Whether past performance
indicates a future trend is always
a risky proposition at best.
However, a recent consensus of
expert opinions assembled by the
Connecticut Economic Conference
Board (for a report to be
issued this month) was largely
bullish for 1998. Despite a
prediction of possibly slower, but
still positive growth, none saw
the likelihood of a national or
State recession. Cautious optimism
prevailed in most of these scenarios.
An October proprietary forecast
prepared semiannually by
the New England Economic
Project (NEEP), a nonprofit
business and academic consortium
from the six New England
states was reported as "slightly
more optimistic" than its earlier
(May) version. The NEEP forecast
for Connecticut, presented by
Fairfield University Economics
Professor Dr. Edward J. Deak,
predicted a Connecticut job gain
of 28,300 in 1998 along with
modest gains in output, population,
and real income consistent
with national advances.
The University of Connecticut
Center for Economic Analysis
(CCEA) forecast expects continued
growth in 1998. Real gross
state product (GSP) is projected
to continue healthy growth at
rates of 1.7 to 2.9 percent per
year through 2000. Based
partially on a set of predictions
for national economic variables
that are tempered by federal
spending cuts and tax changes,
the CCEA model reflects a positive,
but more conservative
growth trend.
Expansion's Duration
The duration of the State's
current economic expansion, now
heading into a sixth year, would
rival the duration of the last
expansionary cycle in the mid- to
late-1980s. As shown in the
"Leading and Coincident Indicators"
article on page 5 of this
issue, the expansionary phase of
that cycle turned down just one
month after six years. Should
the economy continues its expected
growth, it would be the
longest expansion since 1970.
Despite an overall rosy outlook
for 1998, there are always
downside risks. Among these
would be factors such as both
domestic and international
events. Recent market turmoil
and foreign currency devaluations
are indicators that cause
some investors see the future
differently. Energy prices, international
crises, urban and rural
disparity, income inequality,
interest rate policy, and consumer
confidence loom large as
future influences.
As measured, however, the
degree of consumer confidence is
currently a positive force in
Connecticut's economic future.
The "Consumer News" table (p. 8
of this issue) shows that through
September, the New England
consumer confidence index
gained 29.7 percent over its level
in October a year ago - another
indicator of optimism for the year
ahead.
Eating and drinking is big
business in Connecticut. A major employment
generator, food and drink services accounts
for a high number of jobs in the
State. In 1996, the Connecticut Department
of Labor reported 5,600 work
sites, over 75,000 employees, and total
wages of approximately $850 million
dollars in this industry. Statewide, the
Connecticut Restaurant Association
forecasts $2.64 billion dollars
in sales for eating places in 1997,
generating sales tax revenues of
$158.4 million dollars. In addition,
the National Restaurant
Association's 1996 Restaurant
Industry Forecast reported annual
sales of over $300 billion dollars nationally
accounting for more than 4% of the
gross domestic product. The above
figures add up to a very prosperous
industry with a very optimistic forecast.
Trends
A variety of
changes have occurred in our lifestyle
that are resulting in increasing
sales at eating and drinking places
both on a state and national level.
People are eating out more than
ever. It has been reported that
over fifty percent of food dollars are
spent eating out. The emergence
of two income families consisting
of working couples and
other family members,
longer work hours, more
after-hour activities, and
less time for family responsibilities,
are but a few of
the reasons why there is an
increase in eating a larger
share of meals outside the home.
Another important
development dealing with
eating and drinking establishments
is the introduction of brew
pubs and micro-breweries with
restaurants. According to The
Association of Brewers, Inc. of
Colorado, the national average
annual rate of growth for "craft"
brewing is between 30%-40%, one
of the fastest growing industries in
the country. Cities such as Hartford,
New Haven, and Norwalk
have opened units which offer
regional and seasonal beers
brewed locally. In 1996, the
Connecticut Department of Liquor
Control issued nine permits for
brew pubs. With regard to restaurants, cafe's,
taverns, and similar types of sit-down eating
and drinking places, over 4,300 liquor, beer, wine,
or combination permits were issued by the
Department. These numbers indicate that
approximately 77% of eating and drinking
places offer alcoholic drinks on their menus.
State Data
The recessionary years in
Connecticut, between 1988 and
1992, resulted in a 6.5% decline in
employment at eating and drinking
places. For comparison purposes,
the statewide drop in employment
for all industries during this same
period was 9.5%. Although loss of
jobs was common in the eating
and drinking industry, the overall
impact on the state's economy was
more severe. A population decline
also occurred during this period,
as people left the state in search of
jobs and opportunities elsewhere.
An economic recovery period in the
state began in l992 and continues
to gain momentum. Eating and
drinking places have now increased
employment to a level
nearly equal to 1988. The increase
of 6.1% was almost double the
Connecticut employment gain of
3.7% during this same period.
Existing establishments were
hiring more employees and at the
same time new chain and independent
restaurants were expanding
throughout the state. Many new
ethnic, seafood, steak, and fast
food eateries were opened during
this period of economic growth.
County Data
Of the eight counties in the
state, Hartford County ranked first
in 1997 with regard to number of
eating and drinking establishments
(1,452), employment
(22,117), and annual wages
($61,337,810). Fairfield County
was a close second with 1,426
establishments, 17,619 employees,
and $60,228,450 in annual wages.
New Haven County ranked third
with 1,380 establishments, 15,740
employees and total wages of
$41,664,942. These three
counties accounted for 75%-80% of all food and
drink establishments, employment and wages in
the State. Population is a
driving factor in this: Hartford County is the
most populated county in the state with Fairfield
County second, followed by New Haven County.
Wages
Total wages in food and drink
services in Connecticut between
1988 and 1992 were flat. Since
the economy weakened during that
period, people were reluctant to
spend money on eating and drinking
out, which directly affected
employment and wages in the
industry. From 1992 through
1996, a spike of 13% occurred in
total wages paid. The recovery,
together with mandatory federal
and state minimum wage increases,
contributed to this increase.
At the national
level, food and drink
establishments, employment
and total wages
increased annually from
1988 to 1996. With
regard to eating and
drinking places nationally,
the recession was
nonexistent. It seems
that the economic
downturn in Connecticut
had no relationship to a
very healthy industry in other
parts of the country.
Overall, it appears that people
will continue to spend more on
eating and drinking out. As
consumers accommodate their
lifestyle, and satisfy their need for
good food and drink, the economy
will benefit.
Commissioner James F.
Abromaitis of the Connecticut
Department of Economic and
Community Development announced
that Connecticut communities authorized 561
new housing units in November
1997, a 17.9 percent decrease
compared to November of 1996
when 683 were authorized.
The Department further
indicated that the 561 units
permitted in November 1997
represent a decrease of 19.8
percent from the 852 units
permitted in October 1997. The
year-to-date number of permits is
up 18.3 percent, from 7,125
through November 1996, to 8,432
through November 1997.
"The year-over-year increase
in permits indicates that the
state's long-term economic
improvement is continuing,"
Commissioner Abromaitis said.
Reports from municipal
officials throughout the state
indicate that Windham County
with 26.3 percent showed the
greatest percentage increase in
November compared to the
same month a year ago.
Middlesex County followed with
a 7.5 percent increase.
Fairfield County documented
the largest number of new, authorized units in
November with 135. Hartford
County followed with 130 units
and New Haven County had 93
units. Newtown led all Connecticut
communities with 20 units, followed by South
Windsor with 16, and Fairfield with 14.
The Connecticut coincident
and leading employment indexes continue to throw a party
celebrating the current and
expected future outlook for the
Connecticut economy. The current
expansion has passed the
five-year mark, an unusually long
expansion by historic standards.
The question raised in the title to
this article is receiving increased
attention by followers of the
Connecticut economy. The consensus
view, which is also the
view supported by our coincident
and leading indexes, is that the
expansion shows no sign of
ending in the near term.
The coincident index, a barometer
of current employment
activity, continues its recent
healthy upward movement,
although the release of (preliminary)
October data logged a slight
downward tic. The more recent
upward movement in the coincident
index, as noted in prior
reports, reflects a much stronger
recovery than was posted in the
first part of the current expansion.
The leading index, a barometer
of future employment activity,
continues its more modest
upward trend. The leading index
did reach its peak, however, in
the current expansion with the
release of the (preliminary)
October data. We will continue to
monitor carefully the leading
index for any possible signal of
the next downturn.
The followers of the Connecticut
economy have held conversations
on the probable cause of
the next downturn. While by no
means unanimous, many feel
that the current party will be over
when the Federal Reserve raises
interest rates. When will that
happen? Some suggest that the
Federal Reserve will raise interest
rates in the latter half of 1998.
Some eternal, "new-era" optimists
argue that the Federal Reserve
should lower, not raise, interest
rates to reinforce the current
expansion, a position not shared
by the consensus view or the
current authors. The recent
events in Asia, however, probably
delay the need for an interest
rate increase.
employment index rose from 85.6
in October 1996 to 92.4 in October
1997. Once again, all four
index components continue to
point in a positive direction on a
year-over-year basis with higher
nonfarm employment, higher
total employment, a lower insured
unemployment rate, and a
lower total unemployment rate.
The leading employment index
rose from 89.0 in October 1996 to
90.3 in October 1997. 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
higher total housing permits. One
component of the index sent a
negative signal on a year-overyear
basis with a lower average
workweek of manufacturing
production workers. Finally,
Hartford help-wanted advertising
remained unchanged on yearover-
year basis.
Source: Connecticut Center for Economic Analysis, University of Connecticut. Developed by Pami Dua [(203) 461-6644,
Stamford Campus (on leave)] and Stephen M. Miller [(860) 486-3853, Storrs Campus]. Kathryn E. Parr [(860) 486-0485, Storrs
Campus] provided research support.
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