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Connecticut Economic Digest: January 1998 issue
Economic Outlook Strong For 1998 | Eat, Drink And Be Merry - Industry Is Companion To The Economy | Housing Update | How Long Can The Party Last?

Economic Outlook Strong For 1998
by Mark R. Prisloe, Economist

Connecticut's economy showed strength last year, a trend that is viewed as likely to continue in 1998. Employment, income, housing permits, business starts, retail sales, and business and consumer confidence were all up, and continued growth in these economic indicators is forecasted for the year ahead and the near-term horizon.

Upward Trends

On this page in March of last year, the improved status of Connecticut's economy was outlined in some detail. Since that time, the University of Connecticut's coincident index of economic activity, a barometer of current employment activity, has exhibited healthy growth; and the leading index, a barometer of future employment activity, maintained a modest upward trend. The optimism for 1998 is based in part on continued expansion of employment and the drop in the unemployment rate. Through October 1997, the state had added nearly 30,000 jobs over the year and the unemployment rate was down 1.1 percentage points from its October 1996 level, and was identical to the national rate of 4.7 percent. The employment picture was further brightened by job gains even in manufacturing. In October, the Digest noted that the gain in manufacturing employment was the first increase in 13 years.

Per capita income in Connecticut continued to rank the State as tops in the nation. The income data indicate healthy potential for growth in demand for consumer goods and services measured in such statistics as retail sales. Moreover, the accompanying multiplier effects in other sectors of the State's economy translate into future expansion for capital plant and equipment. Such investment spending is likely to see a boost from strong consumer demand.

The performance of retail sales - at least through midyear 1997 - was reassuringly strong. The 7.0 percent growth on a year-to-date basis gave a boost to sales and use tax collections, up 7.4 percent for the fiscal year through September last year.

Housing permits, which constitute a major and leading economic indicator because of their association with demand for consumer durable goods, were also higher in 1997. Interest rates may be a moderating influence if they should rise. Yet the strong performance of statewide housing permits is always an encouraging development. Business starts, as measured by both registrations with the Secretary of the State and the Department of Labor, were both up through September of 1997. This trend is seen as likely to continue as business responds to healthy income growth and consumer demand.

Forecasts Of Future Trends

Whether past performance indicates a future trend is always a risky proposition at best. However, a recent consensus of expert opinions assembled by the Connecticut Economic Conference Board (for a report to be issued this month) was largely bullish for 1998. Despite a prediction of possibly slower, but still positive growth, none saw the likelihood of a national or State recession. Cautious optimism prevailed in most of these scenarios.

An October proprietary forecast prepared semiannually by the New England Economic Project (NEEP), a nonprofit business and academic consortium from the six New England states was reported as "slightly more optimistic" than its earlier (May) version. The NEEP forecast for Connecticut, presented by Fairfield University Economics Professor Dr. Edward J. Deak, predicted a Connecticut job gain of 28,300 in 1998 along with modest gains in output, population, and real income consistent with national advances.

The University of Connecticut Center for Economic Analysis (CCEA) forecast expects continued growth in 1998. Real gross state product (GSP) is projected to continue healthy growth at rates of 1.7 to 2.9 percent per year through 2000. Based partially on a set of predictions for national economic variables that are tempered by federal spending cuts and tax changes, the CCEA model reflects a positive, but more conservative growth trend.

Expansion's Duration

The duration of the State's current economic expansion, now heading into a sixth year, would rival the duration of the last expansionary cycle in the mid- to late-1980s. As shown in the "Leading and Coincident Indicators" article on page 5 of this issue, the expansionary phase of that cycle turned down just one month after six years. Should the economy continues its expected growth, it would be the longest expansion since 1970.

Despite an overall rosy outlook for 1998, there are always downside risks. Among these would be factors such as both domestic and international events. Recent market turmoil and foreign currency devaluations are indicators that cause some investors see the future differently. Energy prices, international crises, urban and rural disparity, income inequality, interest rate policy, and consumer confidence loom large as future influences.

As measured, however, the degree of consumer confidence is currently a positive force in Connecticut's economic future. The "Consumer News" table (p. 8 of this issue) shows that through September, the New England consumer confidence index gained 29.7 percent over its level in October a year ago - another indicator of optimism for the year ahead.


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Eat, Drink And Be Merry - Industry Is Companion To The Economy
by Michael H. Zotos, Ed.D., Associate Analyst

Eating and drinking is big business in Connecticut. A major employment generator, food and drink services accounts for a high number of jobs in the State. In 1996, the Connecticut Department of Labor reported 5,600 work sites, over 75,000 employees, and total wages of approximately $850 million dollars in this industry. Statewide, the Connecticut Restaurant Association forecasts $2.64 billion dollars in sales for eating places in 1997, generating sales tax revenues of $158.4 million dollars. In addition, the National Restaurant Association's 1996 Restaurant Industry Forecast reported annual sales of over $300 billion dollars nationally accounting for more than 4% of the gross domestic product. The above figures add up to a very prosperous industry with a very optimistic forecast.

Trends

A variety of changes have occurred in our lifestyle that are resulting in increasing sales at eating and drinking places both on a state and national level. People are eating out more than ever. It has been reported that over fifty percent of food dollars are spent eating out. The emergence of two income families consisting of working couples and other family members, longer work hours, more after-hour activities, and less time for family responsibilities, are but a few of the reasons why there is an increase in eating a larger share of meals outside the home.

Another important development dealing with eating and drinking establishments is the introduction of brew pubs and micro-breweries with restaurants. According to The Association of Brewers, Inc. of Colorado, the national average annual rate of growth for "craft" brewing is between 30%-40%, one of the fastest growing industries in the country. Cities such as Hartford, New Haven, and Norwalk have opened units which offer regional and seasonal beers brewed locally. In 1996, the Connecticut Department of Liquor Control issued nine permits for brew pubs. With regard to restaurants, cafe's, taverns, and similar types of sit-down eating and drinking places, over 4,300 liquor, beer, wine, or combination permits were issued by the Department. These numbers indicate that approximately 77% of eating and drinking places offer alcoholic drinks on their menus.

State Data

The recessionary years in Connecticut, between 1988 and 1992, resulted in a 6.5% decline in employment at eating and drinking places. For comparison purposes, the statewide drop in employment for all industries during this same period was 9.5%. Although loss of jobs was common in the eating and drinking industry, the overall impact on the state's economy was more severe. A population decline also occurred during this period, as people left the state in search of jobs and opportunities elsewhere. An economic recovery period in the state began in l992 and continues to gain momentum. Eating and drinking places have now increased employment to a level nearly equal to 1988. The increase of 6.1% was almost double the Connecticut employment gain of 3.7% during this same period. Existing establishments were hiring more employees and at the same time new chain and independent restaurants were expanding throughout the state. Many new ethnic, seafood, steak, and fast food eateries were opened during this period of economic growth.

County Data

Of the eight counties in the state, Hartford County ranked first in 1997 with regard to number of eating and drinking establishments (1,452), employment (22,117), and annual wages ($61,337,810). Fairfield County was a close second with 1,426 establishments, 17,619 employees, and $60,228,450 in annual wages. New Haven County ranked third with 1,380 establishments, 15,740 employees and total wages of $41,664,942. These three counties accounted for 75%-80% of all food and drink establishments, employment and wages in the State. Population is a driving factor in this: Hartford County is the most populated county in the state with Fairfield County second, followed by New Haven County.

Wages

Total wages in food and drink services in Connecticut between 1988 and 1992 were flat. Since the economy weakened during that period, people were reluctant to spend money on eating and drinking out, which directly affected employment and wages in the industry. From 1992 through 1996, a spike of 13% occurred in total wages paid. The recovery, together with mandatory federal and state minimum wage increases, contributed to this increase. At the national level, food and drink establishments, employment and total wages increased annually from 1988 to 1996. With regard to eating and drinking places nationally, the recession was nonexistent. It seems that the economic downturn in Connecticut had no relationship to a very healthy industry in other parts of the country.

Overall, it appears that people will continue to spend more on eating and drinking out. As consumers accommodate their lifestyle, and satisfy their need for good food and drink, the economy will benefit.

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Housing Update
November Housing Permits Down 17.9%

Commissioner James F. Abromaitis of the Connecticut Department of Economic and Community Development announced that Connecticut communities authorized 561 new housing units in November 1997, a 17.9 percent decrease compared to November of 1996 when 683 were authorized.

The Department further indicated that the 561 units permitted in November 1997 represent a decrease of 19.8 percent from the 852 units permitted in October 1997. The year-to-date number of permits is up 18.3 percent, from 7,125 through November 1996, to 8,432 through November 1997.

"The year-over-year increase in permits indicates that the state's long-term economic improvement is continuing," Commissioner Abromaitis said. Reports from municipal officials throughout the state indicate that Windham County with 26.3 percent showed the greatest percentage increase in November compared to the same month a year ago. Middlesex County followed with a 7.5 percent increase.

Fairfield County documented the largest number of new, authorized units in November with 135. Hartford County followed with 130 units and New Haven County had 93 units. Newtown led all Connecticut communities with 20 units, followed by South Windsor with 16, and Fairfield with 14.

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How Long Can The Party Last?

The Connecticut coincident and leading employment indexes continue to throw a party celebrating the current and expected future outlook for the Connecticut economy. The current expansion has passed the five-year mark, an unusually long expansion by historic standards. The question raised in the title to this article is receiving increased attention by followers of the Connecticut economy. The consensus view, which is also the view supported by our coincident and leading indexes, is that the expansion shows no sign of ending in the near term.

The coincident index, a barometer of current employment activity, continues its recent healthy upward movement, although the release of (preliminary) October data logged a slight downward tic. The more recent upward movement in the coincident index, as noted in prior reports, reflects a much stronger recovery than was posted in the first part of the current expansion.

The leading index, a barometer of future employment activity, continues its more modest upward trend. The leading index did reach its peak, however, in the current expansion with the release of the (preliminary) October data. We will continue to monitor carefully the leading index for any possible signal of the next downturn.

The followers of the Connecticut economy have held conversations on the probable cause of the next downturn. While by no means unanimous, many feel that the current party will be over when the Federal Reserve raises interest rates. When will that happen? Some suggest that the Federal Reserve will raise interest rates in the latter half of 1998. Some eternal, "new-era" optimists argue that the Federal Reserve should lower, not raise, interest rates to reinforce the current expansion, a position not shared by the consensus view or the current authors. The recent events in Asia, however, probably delay the need for an interest rate increase.

employment index rose from 85.6 in October 1996 to 92.4 in October 1997. Once again, all four index components continue to 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 rose from 89.0 in October 1996 to 90.3 in October 1997. Three 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, and higher total housing permits. One component of the index sent a negative signal on a year-overyear basis with a lower average workweek of manufacturing production workers. Finally, Hartford help-wanted advertising remained unchanged on yearover- year basis.

Source: Connecticut Center for Economic Analysis, University of Connecticut. Developed by Pami Dua [(203) 461-6644, Stamford Campus (on leave)] and Stephen M. Miller [(860) 486-3853, Storrs Campus]. Kathryn E. Parr [(860) 486-0485, Storrs Campus] provided research support.

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Last Updated: October 15, 2002