Which Industries are Important to Connecticut?
By Jungmin Charles Joo, Associate Research Analyst

What industries are prominent in Connecticut and how strong is their presence when compared with the same industries in the nation? What industries have the highest concentration of jobs in the Hartford Labor Market Area (LMA) relative to other areas and the nation? One way to answer these questions is through the use of location quotients of employment.

Location Quotient

A location quotient measures an industry’s concentration or specialization in a geographic area relative to the economy of another geographic area. In this case, we are using location quotients to compare the share of an industry’s employment in the State and its LMAs to the same industry’s share of national employment. For example, if an industry constitutes 5.0 percent of local employment and 2.5 percent of national employment, the location quotient (LQ) would be 2.0. In 1998, the Hartford LMA’s insurance carriers sector had an LQ of 6.63. This means that the share of insurance jobs in the Hartford area was almost seven times that of the national economy! Local employment is relatively specialized in this industry, suggesting that local production exceeds local demand and that the excess is purchased by consumers outside the region. In other words, the Hartford LMA’s high concentration of employment in insurance carrier services indicates not that Hartford area residents have high demand for insurance services, but rather that the Hartford area exports insurance services, bringing outside dollars into the area economy.

Although a location quotient is not a perfect measure of export activity, it does quickly identify unusually large industries within a geographic area. The location quotient technique requires the assumption that the two areas being compared, such as the State and the nation, share uniform consumption patterns and labor productivity. Otherwise, a high location quotient, indicating a higher share of regional employment in a given industry, would be the result of a less productive labor force or unusual local consumption patterns, not export-producing employment.

Connecticut vs. Nation

On a major industry division level, the location quotients calculated for 1998 show that Connecticut had a larger share of employment in finance, insurance, and real estate than the nation as a whole. This, of course, is no surprise because the State is well known for its many large insurance companies. Despite declining employment trends, manufacturing jobs are still more concentrated here than in the nation, mainly due to the continuing roles of aerospace and aerospace-related manufacturers. Also, the strong presence of casino businesses helped boost the services division to more prominence in the State than in the nation.

On a more detailed industry level (2-digit SIC), the chart shows that the top five industries in which Connecticut had a notably higher concentration of employment than the nation were: insurance carriers, local passenger transportation, transportation equipment manufacturing, instruments & related products manufacturing, and fabricated metal products manufacturing.

As the location quotient summary table on page four further shows, employment in educational services, museums, social services, apparel and accessory stores, and personal services also were more concentrated in the State than in the nation. Conversely, industries such as hotels and other lodging places, trucking and warehousing, air transportation, heavy construction, general building contractors, eating and drinking places, general merchandise stores, real estate, and auto dealers & service stations all played lesser roles here than in the nation as a whole.

LMA Comparisons

When the location quotients of major industry divisions for each of the ten LMAs were compared with the nation’s, the Bridgeport, Danbury, Danielson, Lower River, and Waterbury areas showed high specialization in the manufacturing division. The Hartford and Stamford LMAs clearly possessed strengths in the finance, insurance, and real estate division, their employment shares being twice as high as the nation’s. For the New Haven and New London areas, it is the services division that had the highest LQs, with transportation and public utilities also prominent in the New Haven area, while manufacturing was also notable in the New London LMA. The Torrington region showed the greatest job concentration in the construction division, and above national levels in agriculture and manufacturing as well.

On the more detailed industry level, the Bridgeport LMA exhibited the relatively high importance of industries such as transportation equipment and electronic equipment manufacturing and also personal services and miscellaneous repair services for which its employment shares were higher than the respective shares in any other area and the nation. On the other hand, the Bridgeport region lagged in employment in hotels and other lodging places and in paper & allied products manufacturing.

In the Danbury area, employment in the chemicals and allied product manufacturing sector commanded an LQ of 4.69, almost five times that of the nation and surpassing that of all other areas. The apparel & other textile products manufacturing and educational services industry LQs, however, revealed the shares of employment in these industries in the Danbury area were smaller than in any other LMA in the State.

The paper and allied products and rubber and miscellaneous plastic products manufacturing sectors were most prominent in the Danielson region, whereas engineering & management services, legal services, and amusement & recreation services were at the bottom of the area’s LQ list.

Lower River’s strength was in the railroad & water transportation and fabricated metal products manufacturing industries, while its weakness was in the general merchandise stores, communications and insurance carriers sectors.

With its employment LQ standing at 6.63, the insurance carriers sector certainly plays a more significant role in the Hartford region than in any other LMA or the nation, despite the industry’s decreased employment level since the last recession. Transportation equipment and fabricated metal products manufacturing still played important roles here as well (second to New London) when compared with the nation. On the other hand, the Hartford area had its low relative employment in water transportation, motion pictures, and hotels & other lodging places.

The New Haven area is well known for its strong presence in educational services, showing a higher LQ in that sector than any other area in the State. Ironically, its shares of museums & art galleries and motion pictures employment were low relative to all other LMAs and to the nation, suggesting the possibility of more room for development in this area for these industries.

The New London area, which hosts two casinos, boasts an impressively high LQ of 9.86 in the amusement & recreation services sector. The museums & galleries sector is also well developed in the region. What the New London area is lacking, though, are lumber & wood products manufacturing and nondepository financial institution jobs.

When it comes to stocks and wealth, the Stamford LMA employs the highest concentration of employment in security and commodity brokers and holding and other investment offices, employing over five times the nation’s share in those industries. The area also specializes in instruments and related products manufacturing where the local job share is four times that of the nation.

The Torrington area had a high concentration of furniture & fixtures manufacturing jobs, over four times the nation and highest of all the areas. Its general building construction sector LQ also dominated all other regions and the nation. On the other hand, the area had the smallest share of banking employment in the State, a level almost nonexistent when compared with its counterpart nationally.

Finally, the Waterbury region’s strength comes from the fabricated metal products and local passenger transit sectors. Its general building construction sector, however, showed much weakness relative to the other areas and the nation.

Return to Top

Industry Clusters
Going Global

Connecticut's exports were $7.8 billion in 1999 and exceeded $2.0 billion in the first quarter 2000. The Industry Cluster and International Division of DECD provides resources, guidance, and networking opportunities to help state companies take the steps necessary to engage in international trade. DECD’s trade representatives in Sub-Saharan Africa, Mexico, Brazil, Argentina, Israel, and China assisted 129 Connecticut companies, fielded 190 commercial inquiries per month, made 93 on-site company visits and 7 protocol engagements with various government officials, held 4 export seminars, and conducted 12 trade and professional association presentations.

Some success stories include location and/or expansion of five overseas companies. They include Schuecko-Homecraft Inc. (Germany) in Newington, Leipold Inc. (Germany) in Windsor, Martin Bock (Ger-many) in Newtown, Rainbow Grower’s Group (Netherlands) in Suffield, and Hoya Lens, Inc. (Japan) in Bethel. The African Business Conference attracted 250 participants last year. The Connecticut Israel Exchange Commission trade summit showcased products and innovations to promote commercial collaboration. Multi-state and regional cooperative efforts continue through the State’s participation in the Eastern Trade Council of the Council of State Governments. Most recently, an initiative to the state of Baden-Würrtemberg Germany successfully followed up on many of the investment leads generated by the last year’s German visit.

Return to Top

HOUSING UPDATE
Slowdown in New Housing Permits

Commissioner James F. Abromaitis of the Connecticut Department of Economic and Community Development announced that Connecticut communities authorized 777 new housing units in August 2000, a 21.6 percent decrease compared to August of 1999 when 991 units were authorized.

The Department further indicated that the 777 units permitted in August 2000 represent a decrease of 13.5 percent from the 898 units permitted in July 2000. The year-to-date permits are down 15.5 percent, from 7,482 through August 1999, to 6,323 through August 2000.

New Haven County documented the largest number of new, authorized units in August with 159. Fairfield County followed with 152 units and Hartford County had 149 units. Danbury led all Connecticut communities with 34 units, followed by Southington with 23 and Tolland with 18.

Return to Top

Do Big Labor Successes Portend Rising Inflation?

The summer months witnessed a resurgence of big labor’s power. Some of the nation’s best-known companies have recently negotiated collective bargaining agreements. For example, United Airlines settled with its pilots after a difficult summer for its passengers; Verizon (formerly Bell Atlantic) workers ended a two-week strike with a new contract; and troubled Bridgestone/Firestone avoided a strike with an eleventh- hour agreement. In each case, workers achieved solid wage gains. Moreover, those wage gains were not accompanied by give-backs in fringe benefits. Rather, fringe benefit packages expanded as well.

Can inflation be far behind? Those recent labor contracts can exert upward pressure on inflation only if they set a pattern for the rest of the economy. Union leaders argue that the bar on bargaining outcomes has risen. Pilots at American and Delta Airlines may rethink their strategies as a result of the United settlement. Further, union representatives at Goodyear and Uniroyal cite the Bridgestone/ Firestone agreement as setting a new standard. Others express some skepticism about the strong link between union settlements and future inflation, noting that only about 10 percent of the private labor force are unionized. But, union contracts can raise the bar for non-union workers.

Meanwhile, the Connecticut coincident and leading employment indexes still march to slightly different drummers. The coincident index, a gauge of current employment activity, reached a new all-time peak in June, but backed-off a bit with the release of (preliminary) July data. The current expansion continues to roll along with no sign of slowing. The leading index, a barometer of future employment activity, continues marking time with no perceptible trend up or down. The leading index, however, did rise in July after declining for three consecutive months. We shall continue to focus on the future movements in the leading index, because it provides a forecast of the next downturn in the Connecticut economy.

In summary, the coincident employment index rose from 97.6 in July 1999 to 102.9 in July 2000. 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 total unemployment rate, and a lower insured unemployment rate.

The leading employment index rose from 89.1 in July 1999 to 89.6 in July 2000. Two index components sent positive signals on a year-over-year basis with a lower short-duration (less than 15 weeks) unemployment rate and lower initial claims for unemployment insurance. Two components sent negative signals on a year-over-year basis with lower total housing permits and lower Hartford help wanted advertising. Finally, the average workweek of manufacturing production workers remained unchanged on a year-over-year basis.

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 and Jingqui Zhu [(860) 486- 3022, Storrs Campus] pro provided vided research suppor support.

Return to Top