Economy improves further in 1996
By J. Charles Joo, Research Analyst

Connecticut's economy improved further in 1996, producing an annual average of 21,300 more nonfarm jobs than in 1995. The rate of employment growth has been steadily increasing since 1993, beginning up 0.3% that year and rising by 1.4% last year. (See Table 1.) This also means that with the new 1996 benchmark data (See "Annual Revisions" for explanation), Connecticut now has recovered almost half of the total jobs lost during the 1989-92 recession. Connecticut's employment growth, relative to 1980, when compared to the nation's, has been much weaker since 1988.

Employment

All the major industry divisions added jobs in 1996, except for the manufacturing and finance, insurance, and real estate (FIRE) sectors. Services, the largest sector with close to half a million employees and growing rapidly, created 15,700 jobs over the year; since 1992, almost 60,000 jobs have been added, a 14% increase. Health services, in which employment in 1996 made up 32% of the total services sector employment, gained 2,100 new jobs over 1995. The business services industries (comprising 20%) added 8,200 more jobs.

Manufacturing, the third largest industry division with 275,000 workers, has been trimming down every year since 1985. Although 3,800 jobs were lost last year, the pace of manufacturing employment decline has been slowing down since 1992. The transportation equipment industry continued to shed jobs, dropping 2,500 more in 1996. On the other hand, industrial machinery and electronic equipment businesses added 400 and 500 jobs, respectively, last year.

The finance, insurance, and real estate sector has also been shrinking its workforce for the last eight years in a row: between 1988 and 1996, there were 21,500 jobs (-14%) eliminated. Last year alone, commercial banks laid off 2,200 workers while life insurance companies eliminated 3,000 employees. But despite the overall declining trends in the sector, savings institutions actually hired more workers and so did fire, marine and casualty insurance companies.

Total government jobs grew by 2,700 over the year. Local government employment increased by 4,600, mainly due to the Mohegan Sun casino opening in October of last year. Construction has shown steady improvements over 1995 with 1,200 new jobs, while the transportation and public utilities (TPU) sector added 1,800 jobs in 1996. Both wholesale and retail trade sectors grew also, adding 2,700 and 2,900 jobs, respectively. (See Table 2 for more historical details.)

Labor Force

According to the newly benchmarked data, Connecticut's labor force finally reversed direction in 1996 after falling for four consecutive years. About 1,720,000 persons were in the labor force (employed and unemployed who were looking for work) in 1996, which was a 0.4% increase over 1995. As the economy improved, the number of persons looking for work increased causing the unemployment rate to rise slightly to 5.7% last year. This was, for the first time since 1992, higher than the nation's 5.4% rate.

Personal Income

Real personal income has been increasing steadily over the last three years. Although growth was weaker than in 1995, last year's earnings managed to rise 1.7% faster than the inflation rate. When compared to the United States, Connecticut's income grew faster from 1981 to 1989. Since 1990, however, our state's income growth rate has been below the nation's.

Other Economic Indicators

Business starts registered with the Secretary of the State increased by 13.2% in 1996 from the previous year. Despite the increases in business terminations last year, over 13,000 net new businesses were formed. Total tax collections also rose by 3.4% over the year, with real estate conveyance tax receipts increasing by 12.7%. Except for the 7.4% decline in the number of major attraction visitors, the tourism and travel indicators showed further improvement in 1996.

Will the Economic Growth Continue in 1997?

Historically, the number of new car registrations processed has led Connecticut employment trends by two or more years. Registrations were declining for three consecutive years before the 1982 recession started. Two years before the decline in the aggregate employment level beginning in 1989, registrations were already signaling the turning point. So the last two years of consecutive drops in the number of new cars being registered through the Department of Motor Vehicles is somewhat disconcerting, although the levels have still been higher than in the early years (1992, 1993) of the recovery.

Equally disturbing was the trend in new housing permits authorized by towns in the state. After rising for three years, permits started to drop again the last two years in a row. Last year's level was, in fact, about the same as it was in 1991, the worst year in the latest recession.

Conversely, initial claims for unemployment benefits have shown a continued decline for the fifth year in 1996. The claims figures have fallen to an almost pre-recessionary 1989 level. The Hartford Help Wanted Index also indicated the tightening labor market in the state, suggesting the improving business conditions. Although not as great as before the latest recession, the demand for labor has been rising steadily for the last consecutive five years.

Connecticut's economy is expected to continue to grow this year based on the above indications. Although no recession appears in sight, some indicators may be signaling the slowing of employment growth in 1997.

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Housing Update
January housing permits decrease

The Connecticut Department of Economic and Community Development announced that Connecticut communities authorized 433 new housing units in January 1997, a 37.5% increase compared to January 1996 when 315 were authorized.

The Department further indicated that the 433 units permitted in January 1997 represent a decrease of 26.5% from the 589 units permitted in December 1996.

Reports from municipal officials throughout the state indicate that Hartford County showed the greatest percentage increase in January compared to the same month a year ago: 95.6%. This was followed by Middlesex County with 64.7% increase.

Fairfield County documented the largest number of new, authorized units in January with 131. New Haven County followed with 92 units and Hartford County had 88 units. Bloomfield and Glastonbury both led all Connecticut communities with 14 units, followed by Fairfield with 13, Wallingford and Wolcott both with 12.

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Leading & Coincident Indicators
Leading and coincident indexes register downward ticks

Connecticut's leading employment index fell from its November peak with the release of the (preliminary) December data. The leading index also fell slightly (by 0.8 percent) below its level a year ago in December. Connecticut's coincident employment index fell slightly for the second month in a row after rising consistently since December 1995. The coincident index, nonetheless, still remains 6.4 percent higher than its level 12 months ago.

The leading index, a barometer of future employment activity, continues to bounce around, although in November it did reach its peak in the current expansion. The leading index has still not moved in the same direction, either up or down, for more than two consecutive months since December 1994. The most striking feature of this month's change in the components of the leading index is the 46 percent increase in the initial claims for unemployment insurance between November and December. Part of this increase, however, was due to technical factors that shifted some claims from January to December. Another relatively big mover was the 17.0 percent increase in total housing permits.

The coincident index, a gauge of current employment activity, caught its breath over the last two months from its recent strong upward momentum. This recent momentum reflects in large part the lower insured unemployment rate, down 18.8 percent (or 0.6 percentage points) over the last 12 months. But it also reflects higher total employment, up 2.8 percent, and higher nonfarm employment, up 1.5 percent. With the release of the December data, however, nonfarm employment went up a small amount from November and total employment went down a bit. The unemployment rate for the second month in a row rose a tenth of a percentage point while the insured unemployment rate did not change between November and December.

In summary, the leading employment index fell from 89.2 in December 1995 to 88.5 in December 1996. Two of the five index components sent positive signals on a year-over-year basis with a lower short-duration (less than 15 weeks) unemployment rate and higher total housing permits. Two other components sent negative signals with higher initial claims for unemployment insurance and lower Hartford help-wanted advertising, The final component, the average work week of manufacturing production workers, remained unchanged on a year-over-year basis.

The coincident employment index rose from 83.0 in December 1995 to 88.3 in December 1996. Three of the four index components point in a positive direction on a year-over-year basis with higher nonfarm employment, higher total employment, and a lower insured unemployment rate. The other component, the total unemployment rate, points in a negative direction, rising slightly on a year-over-year basis.

Source: Connecticut Center for Economic Analysis, University of Connecticut. Developed by Pami Dua [(203) 322-3466, Stamford Campus (on leave)] and Stephen M. Miller [(860) 486-3853, Storrs Campus]. Tara Blois [(860) 486-4752, Storrs Campus] provided research support.

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