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This article introduces a new
monthly State economic indicator called the Connecticut Manufacturing Production Index
(CMPI), which replaces our current Manufacturing Output Index (MOI). The CMPI
(1982=100), by utilizing a new model that captures the trend of rising manufacturing
productivity in recent years, provides a better measure than the MOI of overall economic
activity in the State's manufacturing sector.
Although manufacturing employment has been declining in the last decade, output (in
terms of value added in dollars) did not necessarily do so, primarily because of rising
productivity (output per hour) from advances in computers and other innovations.
Manufacturing activity is still a very important barometer of current economic conditions
in Connecticut as well as for the nation. In 1996, manufacturing accounted for almost
one-fifth of the real Gross State Product (GSP), and was third largest in terms of output
behind the finance, insurance, & real estate and the services sectors.
Constructing CMPI
Even though measures of manufacturing employment have always been available, this new
index is constructed in a way that combines a measure of the industry's use of
capital with a measure of employment. Based on the Federal Reserve Bank of
Philadelphia's Mid-Atlantic Manufacturing Index, the CMPI employs a
production-function methodology in which output is a function of the inputs. Two inputs
are assumed: labor and capital. The labor input is represented by the State's
manufacturing production worker hours, and industrial electricity sales are used as a
proxy for capital. For a more complete explanation of the methodology, contact the
Connecticut Department of Labor, Office of Research, at (860) 263-6293.
Productivity Matters
Connecticut's last recession, which lasted nearly four years, concluded by the end
of 1992. Over the course of the next six years, aggregate nonfarm employment climbed back
to near its pre-recession level. Jobs in the manufacturing sector, however, saw continuous
declines from 1985 through 1996, as the once heavily defense-dependent industry began to
be dismantled after the end of the Cold War. But, as the chart on the cover page shows,
the CMPI diverges sharply from the manufacturing employment index starting in the early
1980s. Manufacturing output grew rapidly every year between 1985 and 1988, while its
employment fell in each year of that period. Then, after reaching a peak in 1988,
manufacturing sector production declined during the recession years to a low in 1993. From
1994, the level of output started to rise again and reached a new peak in 1998, further
widening the gap between the two indexes.
From 1993 to 1996, Connecticut's manufacturing sector lost on average 1.6 percent
of its jobs annually, but the CMPI measure of production, which takes into account the use
of capital, showed an actual average gain of 1.8 percent yearly. Such a difference
between employment and production is attributed to the increases in labor productivity
over this period. Despite the downward trend in employment through 1996, as the
manufacturing sector restructured and diversified into non-military products and continued
to invest extensively in sophisticated machines and fast computers, labor productivity
began to increase accordingly, hence producing more with less manpower. In 1997 and 1998,
Connecticut manufacturing employment finally turned the corner with 0.5 and 0.9 percent
growth. The combination of increased manufacturing employment and continued rise in
productivity contributed to the increase of 1.9 and 2.8 percent in the CMPI in those two
years.
The annual CMPI was as low as 104.2 in 1983, but reached a record high of 126.5 last
year, indicating that Connecticut's manufacturers produced a dollar value of goods
and services nearly one third more in 1998 than in 1982. By contrast, a third of
Connecticut's manufacturing jobs were eliminated in the last 16 years.
CMPI: A New Economic Indicator
The seasonally adjusted CMPI number of 127.1 in March of this year was 1.0 percent
higher than a year ago, while manufacturing employment decreased 1.3 percent. This
reflects that our State's manufacturing sector production level actually rose because
of the rise in labor productivity, despite the declines in production man-hours.
The new index is updated on a monthly basis, and the previous two months' numbers
get revised each month (see page 6, under Manufacturing Activity, for the latest
data; monthly historical data back to 1982 are available upon request). This new economic
indicator will not only offer a timely and comprehensive measure of the State's
manufacturing activity that employment alone would not reveal, but also will provide us
with another perspective on the health of the Connecticut's aggregate economy.
Last month in this space we began discussing
Michael Porter's concept of industry clusters as drivers of inner city economic
development with implications for Connecticut's urban initiative. Cities, according
to Porter, possess four competitive strengths that form the base for inner city
development. Inner city competitive assets include strategic location; integration with
regional clusters; unmet local demand and human resources. This month we discuss the value
of strategic location. Despite the decentralization of some industries due to
technological advances, many businesses are still location-sensitive as they strive to
compete in a just-in-time, service intensive economy. An inner city location typically
offers a unique set of advantages for many types of businesses including advanced
transportation infrastructure, proximity to a high concentration of businesses,
communications nodes, and entertainment complexes. Businesses located in the inner city
can make rapid deliveries and provide downtown buyers with exceptional convenience.
Land, although possibly more costly than in the suburbs, can also be cheaper in the
inner city than it is downtown. Such factors produce concentrations of successful inner
city businesses. Porter cites examples
of food processing and distribution, as well as world-class medical facilities in
Boston, or logistics and storage businesses in both Los Angeles and Chicago.
Commissioner James F.
Abromaitis of the Connecticut
Department of Economic and
Community Development today
announced that Connecticut
communities authorized 1,026
new housing units in April 1999, a
10.6 percent increase compared to
April of 1998 when 928 were
authorized.
The Department further indicated
that the 1,026 units permitted
in April 1999 represent a
decrease of seven percent from the
1,105 units permitted in March
1999. The year-to-date permits
are up 11.1 percent, from 3,059
through April 1998, to 3,398
through April 1999.
"1999 continues to be a strong
year for the housing market in
Connecticut," Commissioner
Abromaitis said, "I'm encouraged
that we continue to surpass 1998
totals."
Reports from municipal officials
throughout the state indicate that
Tolland County with 40.7 percent
showed the greatest percentage
increase in April compared to the
same month a year ago. Litchfield
County followed with a 33.8
percent increase.
Hartford County documented
the largest number of new, authorized
units in April with 239.
Fairfield County followed with 206
units and New Haven County had
195 units. South Windsor led all
Connecticut communities with 41
units, followed by Norwalk with 38
and Hamden with 32.
In 1998, Connecticut
reached agreement to become one of three states able to export oysters to Japan.
Connecticut oysters are a $62 million dollar industry - larger in total dollar value
than the "Bay State" of Massachusetts (output of $9 million), the
"lobster" State of Maine (output of $55 million), and the "Ocean
State" of Rhode Island (output of $83,000).
Strength of Aquaculture
Connecticut agriculture and aquaculture industries are competing
in an emerging global market. Oysters are just one indication of this. Statistically, the
$62 million Connecticut oyster industry represents 94 percent of the entire Northeast
regional oyster production and six percent of the entire U.S. aquaculture production of
$980 million. Even though it is only 0.2 percent of world production, farm-raised products
increased to 20 percent of global output in 1998 with the research support of bioscience.
Thus farm-raised oysters will be an important contributor to world food sources in the
future. The State participates in the Northeast Regional Aquaculture Center (NRAC), one of
only five created by Congress in 1987 to increase competitiveness in an emerging global
market.
Dollar Value of Output
Overall, the State's Department of Agriculture estimates total output today at $2
billion dollars. Connecticut's agriculture industry produced $893 million in gross
state product (GSP) in 1996 (the latest year for which U.S. government data are
available), up 11 percent from the previous year's $804 million in GSP. The
State's total output as measured by GSP in 1996 was $124 billion. Although
agricultural output is less than one percent of this total GSP, it was a growing
contributor to the State's economy. The average annual rate of GSP growth for the
agriculture industry was 5.3 percent, outpacing the statewide average annual GSP growth
rate of 4.9 percent for the period from 1987 to 1996.
Employment
Agricultural employment was at 7,799 in 1996 compared with 2,393 in 1975. Employment
also increased six percent from 1995 when it was 7,356. The largest share of these workers
were employed in agricultural services, establishments primarily engaged in supplying soil
preparation services, crop services, landscape and horticultural services, veterinary and
other animal services, and farm labor and management services. Less than 100 were
classified as employed in fishing, hunting, and trapping. This figure does not include
family labor, seasonal workers, or those in food distribution and retail.
Farms
According to the 1997 Census of Agriculture, the number of full time farms decreased
slightly from 1,828 in 1992 to 1,824 in 1997. The total number of farms increased from
3,427 in 1992 to 3,687 in 1997. The amount of land in farms increased from 358,743 acres
in 1992 to 359,313 in 1997. The average size of farms decreased slightly from 105 acres in
1992 to 97 acres in 1997.
Establishments
The U.S. Commerce Department defines an establishment as any single physical location
of business. On this basis, agricultural establishments numbered 2,127 in 1996 compared
with 696 in 1975. The major share of these was in agricultural services. Fairfield County
had the largest number of establishments at 781, followed by Hartford County at 442.
Windham County, with 38, had the smallest number of agricultural establishments.
"Green Industry" Leader
Connecticut leads the East in horticultural and floricultural sales (the "green
industry"), and is home to the largest rhododendron grower in the country.
Connecticut also leads New England in the production of eggs, pears, peaches, and
mushrooms. According to the State Department of Agriculture, Connecticut's oyster
crop is the most valuable in the nation and second only to Louisiana in quantity. There
are more horses per square mile here than in any other state, and more milk per cow is
produced in Connecticut than in any state east of Michigan.
Earnings
According to the County Business Patterns, Connecticut's annual agriculture
payroll in 1996 exceeded $199 million. Thus earnings per employee were $25,619. This
compared favorably with the national level of only $20,000.
Exports
Connecticut's 1998 agriculture- related exports totaled $152 million. The share of
agricultural exports accounted for more than two percent of the State's total $8
billion in exports. The largest share of agriculture exports was in crops, totaling $114
million in dollar value.
Conclusion
The agriculture industry is a significant contributor to the State's economy.
While Connecticut is often not perceived as an agricultural State, it's share of
output, growth rate, employment, and the kinds of products in which it leads the nation
characterize it as one of measurable potential.
The Connecticut coincident
employment index fell
slightly from its February peak
with the release of (preliminary)
March data. The index, however,
rose by 4.4 percent over the last
twelve months. The Connecticut
leading employment index continues
to send mixed signals about
the future of the Connecticut
economy, although the index did
increase slightly in both February
and March. Those increases ended
a six-month period where the
leading index rose one month and
fell the next.
Many analysts doubt the
sustainability of the current
expansion in Connecticut. From
where will the new workers come
to fill the new jobs? The unemployment
rate is extremely low and the
labor force, except for last year,
has grown little in recent years.
Measures of employment come
from two sources, total employment
and nonfarm employment.
The labor force, total employment
(included in our coincident index),
and unemployment rate (in coincident
index) numbers depend
largely on the national survey each
month that samples 500 to 600
Connecticut households. Nonfarm
employment (in coincident index)
comes from a monthly survey of
about 5,000 Connecticut employers.
The March ratio of nonfarm to
total employment in Connecticut is
99.99 percent (i.e., the two numbers
differ by only 800). The
national ratio is 95.97 percent. As
such, this difference between the
national and Connecticut ratios,
other things equal, implies an
implausibly small pool of the selfemployed
in Connecticut or large
group of multiple job holders.
Thus, this difference may raise
some question about what the
labor force, total employment, and
unemployment rate numbers in
Connecticut mean. Could the
labor force be larger than reported?
The smaller sample of
households when compared to the
much larger sample of firms
suggests that more noise may exist
in the household survey results.
For a more thorough discussion of
these and related issues, see the
recent articles by Will McEachern,
"Are Labor Shortages Killing the
Current Expansion" ( The Connecticut
Economy, Summer 1998, pp.
12-13) and Salvatore DiPillo
"Defining Employment" ( The
Connecticut Economic Digest, May
1999, pp. 3-4).
In summary, the coincident
employment index rose from 94.8
in March 1998 to 99.0 in March
1999. All four components of the
index 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
fell slightly from 90.4 in March
1998 to 89.5 in March 1999. Four
index components sent negative
signals on a year-over-year basis
with a higher short-duration (less
than 15 weeks) unemployment
rate, higher initial claims for
unemployment insurance, a
shorter average work week of
manufacturing production workers,
and lower Hartford helpwanted
advertising. The fifth
component sent a positive signal
on a year-over-year basis with
higher total housing permits.
SOURCE: Connecticut Center for or Economic Analysis, University of Connecticut. Developed by Pami Dua [Economic Cycle
Research Institute; NY,NY] and Stephen M. Miller [(860) 486-3853, Storrs Campus]. Kathryn E. Parr and Hulya Varol [(860) 486-0485, Storrs Campus] provided research support.
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