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Connecticut Economic Digest: April 1999 issue
1998 Exports Reach All Time High | Industry Clusters | Housing Update | Coincident Index Bullish; Leading Index Mixed

1998 Exports Reach All Time High
By Mark Prisloe, Associate Economist

Merchandise exports from Connecticut businesses to foreign markets increased by 4.2 percent in 1998 to an all-time high value of $8.1 billion. The 1998 increase of $328 million outpaced U.S. exports for the same period, which decreased 1.0 percent. Connecticut's export growth marked a decade-long trend of annual increases and exceeded all but one New England state (Maine, up 4.5 percent) and such major northeastern exporting states as New York (down 0.4 percent), New Jersey (up 2.1 percent), and Pennsylvania (down 1.4 percent).

Export Growth

Export growth is a strongly encouraging economic indicator revealing the competitiveness of Connecticut companies in world markets, the overall strength of Connecticut's economy, and efforts of the Department's Industry Cluster and International Division. Connecticut's favorable export performance in 1998, significantly, is closing a gap in export growth compared with the U.S. as a whole that has been observed in the quarterly data since 1988.

Strategic Plan

To address this, in 1997, the Department of Economic and Community Development (DECD) sought to expand international export growth by establishing goals in its International Strategic Action Plan. Among other things, the Plan set quantifiable targets for export growth. Interestingly, the 1998 exports represented 6.7 percent of the State's estimated $121 billion total output as measured by Gross State Product (GSP), up from 6.5 percent in 1997, at the time of the DECD's Strategic Plan. U.S. exports averaged 8.0 percent of Gross Domestic Product. In addition, Connecticut now has trade representatives in Argentina, Brazil, Mexico, Africa, China, and Israel.

Table 1

Connecticut Export Industries

Value of Exports ($ in millions)

Transportation Equipment

$3,002.1

Industrial Machinery and Computer Equipment

954.1

Instruments and Related Products

940.9

Electronic, Electric Equipment, excluding Computers

615.1

Chemicals and Allied Products

588.7

Fabricated Metal Products

291.9

Primary Metal Industries

244.5

Rubber and Miscellaneous Plastic Products

190.8

Paper and Allied Products

149.3

Scrap and Waste

127.4

Apparel and Other Textile Products

124.2

Miscellaneous Manufacturing Industries

117.2

Data Source

The source of export data is the U.S. Department of Commerce, which releases the data quarterly, based on the merchandise export data from Shippers Export Declarations. The state-level estimates are produced by the Massachusetts Institute for Social and Economic Research (MISER). No comparable state statistics on imports are available and no estimates of service exports by state are made. Although MISER makes available data for both the "zip code of exporter" and "state of origin of movement," only the later data are referenced in this report.

Export Industries

Transportation equipment such as aircraft, aircraft engines and parts, helicopters, and other ship and aerospace products and parts lead Connecticut's merchandise exports. Their total dollar value exceeds $3 billion, and was up 32.8 percent in 1998 alone. While this is undoubtedly Connecticut's major export industry, the diversification of exports can be exemplified by shipments of industrial machinery and computer equipment of nearly $1 billion, instruments and related products valued at over $940 million, electronic and electrical equipment above $615 million, and chemicals and allied products of $589 million. The top ten leading Connecticut export industries and their dollar values in millions are shown in Table 1 above.

Export Countries

Connecticut exported to 176 destination countries in 1998. Canada continued to be Connecticut's leading export market with a 2.2 percent increase over the year to $1.9 billion. Also among Connecticut's top five trading partners are France, up 133.9 percent to $937 million; Germany, up 6.0 percent to $497 million; Japan, down 13.5 to $488 million; and United Kingdom, down 28.3 percent to $469 million. The top ten leading export destinations and their dollar value in millions are shown in Table 2 on page 4.

Traditional Trade Partners

Connecticut's top ten trading partners have traditionally included the European Union nations of France, Germany, and the United Kingdom. Although exports to the U.K. were down in 1998, Connecticut exports to France were up significantly. An examination of industries shows a major boost came from transportation equipment. Similarly, Connecticut exports to Germany were dominated by relatively large but even increases in orders in industrial machinery, chemicals, fabricated metals, as well as transportation equipment. Overall, the State's European exports of $3.3 billion grew 18.6 percent, faster than the U.S. growth rate of 4.5 percent in 1998.

Asian and Eastern Markets

Although much attention was paid in 1998 to the emerging markets, especially Asia, and Connecticut's exports to these markets were down 12.6 percent compared to a year ago, there is some surprising strength in this region. Taiwan, for example, is a notable exception with Connecticut exports exceeding $256 million, up 44.7 percent; exports to Singapore, at $242 million, were also up 0.6 percent. Connecticut's exports to the People's Republic of China were down 23.6 percent. Although overall Connecticut exports to Japan were down 13.5 percent, exports of a few specific industries increased, notably fabricated metals, up 65.8 percent. The State's exports to Russia were up 12.0 percent.

Table 2: Connecticut Export Countries

Country

($ in millions)

Canada

$1,895.2

France

937.2

Germany

496.5

Japan

487.6

United Kingdom

468.9

Mexico

332.0

Korea, Republic of

285.3

China (Taiwan)

255.8

Singapore

246.5

Greece

242.0

Rest of the World

$2,465.3

Latin American Markets

Exports to Mexico, a North American Free Trade Agreement (NAFTA) partner were down 8.9 percent, but still exceeded $332 million in 1998. Connecticut exports to NAFTA partners are up 24.2 percent since the implementation of the treaty in 1994, whereas U.S. NAFTA exports are up 64.4 percent since then. One of the world's emerging markets, namely Brazil, imported $80 million from Connecticut, down 7.6 percent in 1998. Yet, Connecticut exports to the Mercosur countries overall (Argentina, Brazil, Paraguay, and Uruguay) in 1998 were up 7.2 percent in contrast to the U.S. decrease of 3.2 percent. Connecticut exports to Argentina alone were $52 million, up a notable 41.7 percent. Connecticut also increased exports to Peru, a total of $13 million, up 36.5, and to Chile $36 million, up 49.1 percent.

Export Jobs

A recent report for the American Council for Capital Formation cites 12 million of 67 million U.S. employees whose employment is export-related. Applying the same percentage to Connecticut nonfarm employment implies that 292,000 in-state jobs are directly or indirectly related to exports. Alternatively, if there are 36 jobs for each $1 million of export value, this means that the 1998 increase of $328 million in exports supported approximately 12,000 additional jobs statewide in 1998, underscoring the importance of increased exports to the further expansion of jobs in the State.

Export Services

In a concerted effort to promote Connecticut in foreign markets, the Department of Economic and Community Development launched "Access International," a new service to give businesses considering exporting and international investment a single point-of-entry to the resources - both public and private - they may need to succeed. The program is offered in collaboration with the Connecticut Economic Resource Center. For more information, call the Access International line at 1-800-392-2122.


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Industry Clusters
Cluster Supply Chains

Central to the concept of an industry cluster is the notion of traded sector or economic base. Briefly, economic base refers to those industries which sell most or all of their products and services outside of the regional economy. These external sales generate revenue that flows back into the regional economy to purchase labor, specialized services, intermediate goods and raw materials (indirect effect). These payments into the local economy, in turn, tend to get spent locally on housing, clothing, food, entertainment and other local business suppliers and service firms (induced effect). The overall impact of any cluster on the regional economy is due, in large part, to the dollar volume of its local supply chain, that is, what share of total industry cluster consumption firms in the region are supplying.

The total amount of goods and services consumed by any industry, as well as the proportion of those goods and services provided by local industry, can be estimated through the use of input/output (I/O) tables. I/O tables describe interindustry linkages by quantifying the buy-sell relationship between and among each industry in the regional economy. In addition, the I/O table estimates the amount of total demand supplied locally and reports this as a regional purchase coefficient (RPC). The RPC can range from 0.0, in the case where none of the demand is being supplied locally, to 1.0, where all industry demand for a given product or service is being supplied by local firms. Thus, for a given industry, one could estimate the dollar value of the supply chain being supplied locally by multiplying the RPC by the total dollar demand. Using the I/O table for Connecticut, the State will shortly begin developing a more comprehensive and updated definition of selected industry clusters by identifying the key local supply chains. This process will result in a better understanding of the structure and composition of Connecticut's industry clusters and help expand the level of participation in the cluster initiative.

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Housing Update
February Housing Permits Down 19.9%

Commissioner James F. Abromaitis of the Connecticut Department of Economic and Community Development announced that Connecticut communities authorized 518 new housing units in February 1999, a 19.9 percent decrease compared to February of 1998 when 647 were authorized.

"Although we have had decreases from record high levels of permit activity in this month and year-to-date," Commissioner Abromaitis said, "the permit activity remains strong and it is a signal of continued positive economic growth in Connecticut."

Reports from municipal officials throughout the state indicate that Litchfield County with 43.8 percent showed the greatest percentage increase in February compared to the same month a year ago. Middlesex County followed with a 26.2 percent increase.

Hartford County documented the largest number of new, authorized units in February with 118. Fairfield County followed with 113 units and New Haven County had 103 units. Glastonbury led all Connecticut communities with 24 units, followed by Newtown with 14 and Bridgeport, Middletown and New Milford tied at 12.

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Coincident Index Bullish; Leading Index Mixed

The Connecticut coincident employment index, once again, moved to a new peak with the release of (preliminary) January data. During the past year, the coincident index fell in only two months March and September. The coincident index now stands a level not seen since March 1990 and not too far from its prior peak in February 1989. The Connecticut leading employment index continued to send mixed signals about the future path of the Connecticut economy by falling in January. This past year, the leading index moved higher in three of the first four months and then fell for four consecutive months. It has bounced around since then, moving up in October, down in November, up in December, and finally down in January. We have carefully monitored the leading index over the past year because its movements have raised some concern about the possibility of an impending slowdown in the Connecticut economy. The January number, as already noted, provides continuing uncertainty about the probable next systematic move in the leading index - higher, signaling continued expansion, or lower, signaling a future slowdown or downturn.

This month, we compare the level of the coincident index today with its previous peak in February 1989. Currently, the coincident index lies 3.7 percent below its prior peak of 102.5. Only one component of the coincident index, the unemployment rate, is more bullish today than at the previous peak 3.0 percent now versus 3.2 percent then. The other components were more bullish in February 1989 non-farm employment was 1,678,300 then and 1,660,500 now; total employment, 1,693,800 then and 1,667,400 now; and the insured unemployment rate, 1.53 percent then and 2.06 percent now. To accurately evaluate these numbers, we need to remember that the labor force in the state fell by about 100,000 during the 1990s. In sum, the Connecticut economy has nearly recovered from the Great Recession of the late 1980s and early 1990s.

In summary, the coincident employment index rose from 94.6 in January 1998 to 98.7 in January 1999. All four components of the index, once again, point in a positive direction on a year-overyear basis with higher nonfarm employment, higher total employment, a lower insured unemployment rate, and a lower total unemployment rate.

The leading employment index decreased from 91.7 in January 1998 to 89.1 in January 1999. All five 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, lower total housing permits, and lower Hartford help-wanted advertising. This is the first time since we began reporting the leading index that all five components sent negative signals on a year-over-year basis in the same month.

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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Last Updated: October 15, 2002