1998 Economy: At Full Speed
By J. Charles Joo, Research Analyst

Not only did it not sink last year, Connecticut's economic ship continued to ride the wave of economic recovery at full speed. Among positive economic indicators, the number of new auto registrations processed reached 212,060, an all time high in the 36-year history of record-keeping for this indicator. New housing permit figures rose in 1998 to a new high since 1989, finally breaking the 10,000 mark in the current recovery. The number of initial claims for unemployment, which has been declining since 1992, was at its lowest level in a decade. The number of commercial airline passengers, increasing in the last five consecutive years, finished the 1989-1998 period at a new high. And since 1992, Connecticut personal income has been growing strong, consistently outpacing the inflation rate; last year's rise in income exceeded the rise in the cost of living by nearly three percentage points. (See page 4 for a full page of economic indicators for the past decade.)

Strongest Job Growth

Connecticut ended 1998 with a two percent employment gain, the strongest job growth since the current recovery began in 1992. Last year's annual average increase of 32,400 nonfarm jobs was more than the revised figure of 29,000 jobs gained the year before. The Nutmeg State now has regained nine out of every ten jobs lost during the 1989-92 recession. Although the nation's employment grew faster, 2.6 percent over the year, our State now appears poised to exceed the fringes of recovery and move into full-fledged expansion! The newly benchmarked unemployment rate for 1998 dropped to 3.4 percent from 5.1 percent the year before, making it the lowest rate since the pre-recession year of 1988 (3.0%). This was well below the nation's 4.5 percent unemployment rate last year.

Construction Sector Leads Job Growth

As in 1997, all major industry divisions added jobs in 1998. This time, the construction sector led in percentage job growth over the year, followed by the services and finance, insurance, and real estate sectors. Connecticut's continuously improving economy, along with low inflation and low interest rates, helped to boost the housing market, as evidenced by the record high number of new housing permits issued, and led to an explosive growth in the number of construction jobs throughout the State. The biggest job gain, for the seventh consecutive year, was in services, with 17,500 jobs added over the year. Business services continued to lead this sector's employment growth. The manufacturing sector added jobs again last year, this time mainly from growth in the fabricated metal and printing & publishing industries. Even employment in transportation equipment manufacturing businesses picked up last year after many years of decline.

Torrington Area Leads Job Growth

In 1998, all ten labor market areas in Connecticut added jobs from a year ago. As the table below shows, the Torrington Labor Market Area (LMA) experienced the largest percentage job growth in 1998, followed by the Danbury and Stamford LMAs. Since hitting its low in 1995 and lagging other areas, the Hartford LMA has recorded three consecutive years of modest, but steady employment growth. The Waterbury area, after posting strong growth in 1996 and 1997, showed the smallest percentage job growth of the labor market areas over the past year.

Rabbit, Run

In the Chinese calendar, 1999 is the Year of the Rabbit, and like the rabbit in the famous race with the turtle, Connecticut is off to a good start. The State has gained another 200 jobs in January of 1999, providing the economy with 29,100 more jobs than a year ago. But with ever-increasing uncertainties in the national and global economies, and with business cycle fluctuations being almost as certain as death and taxes, will the State's 1999 economy take a nap in the race to be globally competitive? One sign of the rabbit losing its edge is that the labor force in the State dropped last year, following two years of increases. Also the Hartford help wanted index stayed the same, after rising for the last six years. Moreover, the State Labor Department's record of new business starts showed a decline, while the number of business terminations increased in 1998. So lest the slow, but constantly competitive turtle sneak up on us, it is important Connecticut keep its pace and, borrowing from Updike, run Rabbit, Run.

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Industry Clusters
Lean Manufacturing is Focus

The Manufacturing Cluster Advisory Board in its initial recommendations called for a "Manufacturing Resource Center" to enhance smaller manufacturers in their ability to face increased national and international challenges. The Connecticut Technology Extension Program, CONN/STEP was designated as the lead organization in this initiative.

Working closely with industry cluster representatives, a three-year business plan was finalized and Industry Cluster representatives have been placed on the Board of CONN/STEP to oversee the plan's implementation. A cost-sharing system for first time users of the Manufacturing Resource Center has been established to reduce the cost and increase the affordability to smaller firms.

The Center will promote the adoption of "lean manufacturing" a philosophy and approach to manufacturing operations that involves re-engineering with employee involvement, changes in plant layout, just-in-time inventory, cellular manufacturing, product design changes, and other aspects of continuous improvement in process. Ultimately the changes lead to improved operational and financial performance.

Over the last two years, more than 30 Connecticut manufacturers have benefited from an on-site simulation of lean manufacturing practices demonstrated by CONN/STEP. The Department of Economic and Community Development is providing funding matched by federal and other resources available to CONN/STEP.

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Housing Update
January Housing Permits Up 1.6%

Commissioner James F. Abromaitis of the Connecticut Department of Economic and Community Development announced that Connecticut communities authorized 749 new housing units in January 1999, a 1.6 percent increase compared to January of 1998 when 737 were authorized.

"The Connecticut housing market continues to show strength,î Commissioner Abromaitis said. ìThe increase in housing starts, especially in New Haven County, is particularly noteworthy."

Reports from municipal officials throughout the state indicate that New Haven County with 261.8 percent showed the greatest percentage increase in January compared to the same month a year ago. Tolland County followed with an 18.8 percent increase.

New Haven County documented the largest number of new, authorized units in January with 369. Hartford County followed with 117 units and Fairfield County had 110 units. City of New Haven led all Connecticut communities with 195 units, followed by Milford with 112 and Glastonbury with 21.

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Connecticut And Nation End Year On Strong Positive Note

The Connecticut coincident employment index moved much higher, and to a new peak, with the release of (preliminary) December data, in large part due to the fall in the unemployment rate from 3.8 to 3.1 percent. The coincident index has now reached a level not seen since March 1990. The leading employment index also moved higher in December, primarily a result of the decline in initial claims for unemployment insurance and the increase in housing permits. Compared to its prior levels over the last year, the leading index now exceeds these levels in six of the twelve months and falls short of them in the other six. We have carefully monitored the leading index over the past year because its movements have raised some concern about the possibility of an impending downturn in the Connecticut economy. The December number provides some breathing room from such concerns and allows us to continue to call for an expansion through 1999.

Events at the national and international levels, which provide a key component to the future of the Connecticut economy, continue to offer surprises to analysts and pundits. The most recent unexpectedly robust growth in U.S. real GDP in the fourth quarter of 1998 sends a positive signal about the strength and durability of the current expansion. This expansion is now approaching the longest peace-time one on record. The Asian crisis and the launching of the Euro in the European Union, however, both add some uncertainty to forecasts about future economic activity. Moreover, the stock markets around the globe respond quickly to rumors and rumors of rumors (for example, will the Fed raise interest rates at its next meeting?). To date, however, few analysts foresee a downturn in the U.S. economy in the near term.

In summary, the coincident employment index rose from 93.5 in December 1997 to 98.4 in December 1998. All four components of the index, once again, 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 increased from 89.0 in December 1997 to 90.7 in December 1998. Four 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, lower initial claims for unemployment insurance, a longer average work week of manufacturing production workers, and higher total housing permits. The other component sent a negative signal on a yearover- year basis with lower Hartford help-wanted advertising.

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) 486-3022, Storrs Campus] provided research support.

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