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Connecticut Economic Digest: July 1999 issue
1998: A Stellar Year for Housing | Industry Clusters | Housing Update | New Haven Leads in Jobs, as Greenwich Tops in Wages | National Events May Hold Future of Connecticut Economy

1998: A Stellar Year for Housing
By Kolie Sun Chang, Associate Research Analyst

Housing activity, along with employment, labor force, taxes and exports, are among the major indicators in measuring economic performance. Most of these economic indicators were pointed in a positive direction in 1998, evidence of a healthy and strong economy. This article will focus on the different aspects of the housing statistics.

Total Housing Production

According to the recently released housing statistics from the Bureau of the Census, Connecticut permit authorizations reached 11,863 units in 1998. As the graph indicates, in 1998 we experienced the largest growth in the period since 1990. There were eight months out of the year that housing permits issued set records. Compared to a year ago, total housing production increased 26.9 percent from the 9,349 in 1997 to 11,863 in 1998, the biggest percent increase since 1987.

Single-Family vs. Multi-Unit Homes

In 1998, 9,130 permits were authorized for single-family dwellings, accounting for 77 percent of all the permits issued. Condominium and apartment buildings with five units or more shared almost 20 percent of the market.

Counties

In 1998, Fairfield County had the largest number of new residential permits with 2,978, followed by Hartford County with 2,790, and New Haven County with 2,301. All three counties set records for new permits issued in this decade. Among counties, Fairfield posted the greatest percentage increase in authorizing housing units compared to the previous year, 17 percent. Litchfield County recorded the smallest increase of 5.7 percent from 732 units in 1997 to 774 units.

Municipalities

Danbury led the State in permit issues during 1998 with 662 units, up 174 percent over the 1997 total of 242 units. Manchester ranked second with 483 permits, an increase of 162 units, up 50 percent over the 1997 total of 321 units, followed by Hamden with 458, Middletown with 254, and Glastonbury with 246 units.

Net Gains/Demolitions

When taking demolition into consideration, Danbury had the highest net gain of 904 units, Manchester placed second with 477, and Hamden was the third with 455. The city of Hartford had the largest demolition permits issued with 1,200, New Haven with 370, followed by New Britain, Bridgeport and Waterbury with 281, 276, and 109 units respectively.

Median Home Sales Price

According to the Connecticut Policy and Economic Council (CPEC), Connecticut's median sales price rose 1.4 percent from $138,000 in 1996 to $140,000 in 1997. The number of home sales increased by 3,356, or 8.5 percent. The mean home price in Connecticut was slightly over $204,000, compared with $195,000 a year earlier. This increase suggests that homes were more expensive in 1997 than in 1996.

Construction Value

The valuation of construction is the cost of construction as recorded on the building permit. This figure usually excludes the cost of on-site development and improvements, and the cost of heating, plumbing, electrical and elevator installations. The new home average construction value in Connecticut on a single unit was $138,321 in 1998, up 6.1 percent from the previous year.

U.S. Housing Market

An examination of the U.S. housing market shows that 1998 was also a strong year for the nation. Overall, U.S. housing starts, on a seasonally adjusted basis, were 1.62 million, up 9.9 percent from 1.48 million in 1997. Single family units of 1.28 million were up 12.4 percent compared with 340,000 multi-family units, up 1.4 percent.

Nationally, existing home sales of 4.78 million were at their highest level in the last five years, up 13.5 percent. The Northeast U.S. with 900,000 existing unit sales, up only 10.9 percent, was behind all other geographic regions. The South, with 2 million existing sales units, up 17.3 percent, led both the Midwest, up 13.0 percent, and the West, up 13.2 percent (both 1.3 million units).

Existing home prices also showed a 5.2 percent increase in the Northeast, tied with the South and lower than both the Midwest, up 6.0 percent, and the West, up 7.7 percent. An existing home in the Northeast had a median price of $149,200 in 1998, higher by 14.7 percent than the U.S. 1998 median existing home price of $130,000.

Connecticut Economy

Clearly, the housing market continues to be strong. Data from the Bureau of the Census indicated a 26.9 percent increase compared with a year ago. The rest of the economy also experienced growth, with a two percent employment gain, one of the strongest since 1992, the lowest unemployment rate in two decades, the largest number of auto registrations processed, personal income outpacing the inflation rate, and the stock market breaking 10,000 points. Therefore, we can proudly claim that 1998 was a stellar year with the housing sector playing a significant role in the State economy.


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Industry Clusters
Regional Links

The second of Harvard School of Business Professor Michael Porter's four competitive strengths that form the basis for inner city development is the inner city's potential for connecting with regional clusters. Industry clusters that may exist in the inner cities are positioned to play an integral role in the activity of larger, regional clusters.

The Initiative for a Competitive Inner City (ICIC), a national not-for-profit organization founded at Harvard in 1994 and chaired by Michael Porter, will soon be identifying the industry clusters in five Connecticut urban centers, namely Bridgeport, Hartford, New Britain, New London, and Waterbury. Connecticut is the first state in the nation to develop a strategy to simultaneously improve the economic potential of five cities statewide.

Working with the Governor's Council on Economic Competitiveness and Technology and the Department of Economic and Community Development, ICIC expects to link interdependent industries. Businesses typically located and prospering in the dozen cities Porter has studied have included food processing, storage and distribution, communications, health services, tourism and entertainment, consumer retail services, financial services, education, media, construction, and real estate.

Identifying the specific clusters will facilitate matching of local residents with job opportunities. The goal of the initiative is greater income and wealth for inner city residents as well as business development.

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Housing Update
Year-to-Date Permits Up 4.2%

Commissioner James F. Abromaitis of the Connecticut Department of Economic and Community Development announced that Connecticut communities authorized 886 new housing units in May 1999, a 15.7 percent decrease compared to May of 1998 when 1,051 were authorized.

The Department further indicated that the 886 units permitted in May 1999 represent a decrease of 13.7 percent from the 1,026 units permitted in April 1999. The year-to-date permits are up 4.2 percent, from 4,110 through May 1998, to 4,284 through May 1999.

"Our year-to-date totals for 1999 continue to surpass those of 1998, a year in which we experienced the largest growth in this decade," Commissioner Abromaitis said.

Reports from municipal officials throughout the state indicate that Middlesex County with 64.7 percent showed the greatest percentage increase in May compared to the same month a year ago. Tolland County followed with a 16.7 percent increase.

Fairfield County documented the largest number of new, authorized units in May with 185. New Haven County followed with 184 units and Hartford County had 174 units. Newtown led all Connecticut communities with 27 units, followed by Groton and Wallingford, each with 26, and Hamden and Southington, each with 25.

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New Haven Leads in Jobs, as Greenwich Tops in Wages
By J. Charles Joo, Research Analyst

The table on the next page profiles all of Connecticut's 169 cities and towns by five categories of economic indicators for 1998. Below are some highlights from the latest annual average data prepared by the Connecticut Labor Department's Office of Research.

Labor Force

Stamford had the biggest resident labor force of 65,942, while the smallest was in Union with 381 persons.

Unemployment Rate

Voluntown's 8.0 percent was the highest unemployment rate last year. Hartford's percentage of unemployed persons dropped significantly from 10.0 percent in 1997 to 6.7 percent in 1998.

Establishment

The largest number of business establishments was located in Stamford with over 5,000 units 1998, adding 4.3 percent more new businesses over the year.

Employment

Hartford had the largest number of jobs last year, adding 1,806 jobs over the year. After losing over 1,000 jobs in 1997, New Haven recorded the largest gain in jobs during 1998, adding 2,883.

Wages

In 1998, the highest annual wage of $82,561 was paid to employees of firms located in Greenwich. Workers at businesses in the town of Union averaged the lowest at $15,783.

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National Events May Hold Future of Connecticut Economy

The Connecticut coincident employment index rose, but remained slightly below its February peak, with the release of (preliminary) April data. The Connecticut leading employment index, although still lower than its level twelve months ago, has risen slightly each of the last four months. Thus, the coincident employment index tells us that the Connecticut economy continues to have significant economic expansion. The leading index, however, has been giving off mixed signals for the past year.

Nonfarm employment currently stands at 1,664,800. At its peak in February 1989, it was 1,678,300. Thus, nonfarm employment falls 13,500, or 0.8 percent, below its previous peak. If the Connecticut economy continues to grow, it should surpass the February 1989 peak in nonfarm employment within the year, possibly before January.

As we go to press, the June 29 to 30 meeting of the Federal Open Market Committee (FOMC) has not yet occurred. Much speculation abounds about whether the FOMC will increase interest rates because of an overheating U.S. economy. The resignation of Alice Rivlin, vice chairwoman of the Federal Reserve, and more recent comments by Chairman Greenspan makes an interest rate increase more likely. Ms. Rivlin was a staunch supporter of the view that the economy was now better positioned to sustain non-inflationary growth. Although her resignation becomes effective on July 16, she will not participate in the June meeting. As noted in this column before, the future health of the Connecticut economy hinges in significant ways on the health of the national economy. Were the FOMC to raise interest rates, this could slow the national economy and subsequently slow the Connecticut economy as well. Connecticut recovered from the most recent "Great Recession" later and more slowly than the rest of the country, but has experienced much more healthy growth since January 1996. An increase in interest rates will not be welcome news in Connecticut. Nevertheless, the FOMC must remain vigilant and snip incipient inflation in the bud before it can flower.

In summary, the coincident employment index rose from 95.4 in April 1998 to 99.4 in April 1999. Two components of the index point in a positive direction on a year-over-year basis with higher nonfarm employment and higher total employment. One component points in a negative direction with a higher insured unemployment rate. Finally, the fourth component, the total unemployment rate, remains unchanged.

The leading employment index fell slightly from 90.9 in April 1998 to 90.2 in April 1999. Four 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, and lower Hartford help-wanted advertising. The fifth component sent a positive signal on a year-over-year basis with higher total housing permits.

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) 486-0485, Storrs Campus] provided research support.

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Last Updated: October 15, 2002