Expansion at Last!
By Jungmin Charles Joo, Associate Research Analyst

Connecticut's economy in 1999 not only continued to grow at a solid pace, but it finally recovered all 158,000 jobs lost during the last recession (1989-92) and has now officially shifted into an expansionary gear. Although last year's jobs grew at a slower rate than in 1998 and less than the nation grew in 1999 (2.2%), there was a net increase of 28,300 new jobs, or a solid growth of 1.7 percent. The unemployment rate fell to 3.2 percent last year, which was one full percentage point below the nation's low 4.2 percent. Also, real personal income in Connecticut reached its highest level yet in the 1990s. Except for 1991, the income of State residents rose faster than the cost of living every year of the decade.

Among other positive economic indicators, the number of initial claims for unemployment in 1999 was at its lowest since the pre-recession level in 1988. Last year's number of new automobile registrations processed was even higher than the all time high record in 1998; last year's state tax collections were also the highest in the nineties; and the number of commercial airline passengers, increasing for the sixth consecutive year, finished the decade at a new high.

Construction Tops in Job Growth Again

The construction industry division once again led in percentage job growth last year, as the continuously expanding economy, along with relatively low inflation and low interest rates, helped to lift the housing market further. Despite a slight decline, last year's new housing permit activity level remained above 10,000. During the last decade, the index of construction contracts reached its highest in 1999. As the chart below also shows, after losing so many jobs during the last recession, this small but dynamic sector made a dramatic turnaround in the last decade.

Strong employment growth over the year also occurred in the government industry division, particularly in the local government sector. During the 1990s, this division was second to services in producing the highest average annual gains in jobs, primarily due to the inclusion of Native American tribal-run casinos in this industry division.

The manufacturing industry division clearly fared worst among the nine major industry divisions over the year, losing jobs after showing increases for two consecutive years. Most of the deterioration occurred in the durable-goods industries, among which the change in trend was most severe in fabricated metal products, industrial machinery and equipment, and electronic and other electrical equipment. Although the average weekly hours of production workers in manufacturing dipped, the inflation-adjusted average hourly earnings not only rose over the year, but also were the highest seen in the last ten years.

The services industry division continued to chug along, pumping the biggest number of jobs into the State economy over the year. The business services industry, mostly driven by the Internet and computer-related sectors, continued to dominate this division's rapid job growth. Services sector jobs also grew more rapidly than in any other division, which contrasted sharply with the decline in manufacturing during the nineties.

The finance, insurance, and real estate (FIRE) industry division gained momentum last year, having begun its recovery as late as 1997 (albeit not all the jobs lost in the last downturn are recovered yet). Employment in the transportation and public utilities (TPU) industry division came back even stronger last year. While the retail trade division added more jobs, the wholesale trade division's employment actually dropped slightly last year for the first time in six years. Nevertheless, the trade industry division as a whole has steadily regained jobs over the years, with employment getting back up to the level seen in 1990.

All Ten LMA Jobs Up

All ten labor market areas (LMAs) in Connecticut added jobs again last year. As the table on page 2 shows, the Lower River LMA experienced the largest percentage job growth last year, while Bridgeport's grew the least.

Among the ten labor market areas, the largest construction job growth occurred in the Hartford LMA last year. All but the Torrington Area experienced job losses in manufacturing over the year; the largest decline was in the Stamford Area. Only the Danbury area lost wholesale and retail trade jobs, while only the New Haven LMA shed finance, insurance, and real estate jobs over the year. All the areas in the State added services jobs, except Waterbury, which actually experienced a slight drop in services employment in 1999. The government sector overall fared well across all ten areas from a year ago.

Y2K: A Good Millennial Start?

One concern that still remains is that of labor shortages in the State for skilled workers. Unemployment is already about as low as it can be, and the labor force level fell for the second year in a row as the number of state residents in the labor force who were working actually declined slightly in 1999. Nevertheless, the new millennium is off to a good start with January jobs showing 1.5 percent growth from a year ago. Despite the inflationary threat looming on the horizon, with the Y2K bug now behind us and the New Economy ushering us into a brave new world, Connecticut's economic expansion may prove to be resilient.

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ANNUAL REVISIONS TO NONFARM EMPLOYMENT AND LABOR FORCE ESTIMATES

Every year, nonfarm employment estimates are revised during the annual "benchmarking" process. The benchmarking reanchors the sample-based estimates to the universe levels, which account for approximately 98% of all Connecticut nonfarm employment. This year the revised statewide employment level for March 1999 was 4,000 higher than originally estimated, an upward revision of 0.2 percent. March is used because it is the most recent month for which the universe benchmark data are available when the revision process begins.

Monthly labor force estimates, like the nonfarm employment estimates, are considered preliminary and are also revised annually after the end of each calendar year to correspond with the annual average of the findings from the Current Population Survey, a monthly canvas of households throughout the nation. Unlike the preliminary monthly estimates, which are produced using a regression model designed by the U.S. Bureau of Labor Statistics, the degree of statistical error can be calculated on the survey data, and is smallest for annual averages. Therefore, the annual average estimates from the Current Population Survey become the official estimates, and are used to replace the monthly preliminary numbers. For 1999, the annual average unemployment rate for Connecticut was revised upward by two-tenths of a percentage point, from 3.0 percent (based on the preliminary monthly data) to 3.2 percent. Monthly estimates have been adjusted to reflect this change.

The revised series are available by contacting Connecticut Department of Labor, Office of Research at (860) 263-6290.

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Industry Clusters
Tourism Impact Up

A recently released study revealed record increases in the impact of the state's " We're Full of Surprises" tourism marketing campaign. The seventh annual benchmark study measured the effectiveness of a year-long advertising and public relations effort to encourage visitation to Connecticut by residents of the Greater New York metropolitan area.

Major findings include:

• Nearly $100 million dollars in spending generated by visitors - a 46% increase over 1998
• Approximate return on investment of $40 for each dollar spent to market visitation to state
• Inquiries to 1-800 CT BOUND increased by 24%, to 286,471
• Conversion rate (those who called and came) sustained at an all-time high of 57.8%
• 88% of visitors likely to return

In addition, the study recorded specific spending increases in the categories of "shopping", which rose by 41%; "lodging", up 24.3%; and "dining", up 6.4%. The study only tracks spending by visitors from the Greater New York area who called the hotline number, therefore does not reflect additional spending from those who did not inquire, or those who visited the state's website (www.ctbound.org).

In 1999 the state tourism strategy included fine-tuning its marketing message to reflect the world-class and unique attributes Connecticut offers as a vacation destination.

For copies of the report, contact Barbara Cieplak at the Office of Tourism, 860-270-8088.

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HOUSING UPDATE
January Housing Permits Up 7.2 Percent

Commissioner James F. Abromaitis of the Connecticut Department of Economic and Community Development announced that Connecticut communities authorized 803 new housing units in January 2000, a 7.2 percent increase compared to January of 1999 when 749 units were authorized.

The Department further indicated that the 803 units permitted in January 2000 represent an increase of 23.9 percent from the 648 units permitted in December 1999.

Reports from municipal officials throughout the state indicate that Fairfield County with 252.7 percent showed the greatest percentage increase January compared to the same month a year ago. New London County followed with a 44.7 percent increase.

Fairfield County documented the largest number of new, authorized units in January with 388. New Haven County followed with 139 units and Hartford County had 83 units. Stamford led all Connecticut communities with 307 units, followed by Hamden with 54 and Middletown with 22.

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Connecticut Economy Enters New Year With Continued Strength

The Connecticut coincident and leading employment indexes both ended the year higher than a year earlier with the release of (preliminary) December 1999 data. The coincident index reached a new peak in the current expansion, rising by 3.1 percent on a year-over-year basis. The current level of the coincident index has not been seen since March 1989, near the peak of the last expansion. The leading index was also higher over the past year, but only by 0.2 percent. The leading index does end the year at its highest level since July 1998.

The coincident index, a gauge of current employment activity, continues its strong performance over the past four years. (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. In sum, the Connecticut economy continues to experience a healthy expansion. No sign currently signals 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 Chairman of the Federal Reserve Board has ratcheted up his inflation concerns a couple of notches with the fourth interest rate increase in a year at the February Federal Open Market Committee meeting. Fed watchers expect more to come. Greenspan plans to engineer another soft landing and continue the current unprecedented expansion. And as noted before in this column, the future of the national expansion plays a crucial role in the future of the Connecticut expansion.

Connecticut also derives an extra kick from Federal Reserve policy actions, because interest rate increases can generate retrenchment in the stock markets. Connecticut residents not only have the highest per capita income in the country but also draw significant income from the stock market. So declining asset values could trigger reduced spending in Connecticut that potentially slows the economy.

In summary, the coincident employment index rose from 99.0 in December 1998 to 102.1 in December 1999. 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 90.3 in December 1998 to 90.5 in December 1999. Four 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, a higher average workweek of manufacturing production workers, and higher Hartford help wanted advertising. One component sent a negative signal on a your-over-year basis with lower total housing permits.

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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