2001: A Recession Odyssey
By Jungmin Charles Joo, Associate Research Analyst, DOL

What an economic odyssey 2001 turned out to be. The long streak of yearly solid job growth finally came to an end. The newly released revised annual average data confirmed that Connecticut nonfarm employment declined in 2001 by 0.6 percent, or 10,800 jobs, after having added jobs in the last eight years. The revised data show that Connecticut's seasonally adjusted total nonfarm employment peaked in July 2000, and rebounded somewhat in the beginning of 2001 before starting its descent. Since employment is a prominent measure of recession and recovery, July 2000 likely marks the beginning of our current recession. (In the article that follows this, "Employment Indicators: Is the Connecticut Economy in a Recession?" the author of that article arrives at another conclusion, working with data on the previous year's benchmark and different criteria for recession.) Last year's downturn was marked by severe job cuts in manufacturing and very weak employment growth in the services industries. It marked the ninth recession, on an annual average basis, in Connecticut since nonfarm employment estimation began in 1939. As the chart below shows, the longest recession with the largest number of jobs lost (-141,200, or 8.7 percent) occurred during the 1989-92 period (the years of annual average employment decline are indicated in gray bars). The most severe recession, in terms of percent changes, occurred towards the end of World War II in 1944-45 when almost 15 percent of jobs were lost (-110,600).

There were other distressing economic indicators in 2001 that pointed to this inevitable reversal of economic growth. The unemployment rate rose a full percentage point to 3.3 percent last year, breaking four consecutive years of decline. The labor force declined also, making it the largest percentage drop since 1994. After steadily declining every year in the last decade, the number of initial claims for unemployment suddenly rose sharply last year. The Hartford help-wanted index dropped for the third consecutive year. The number of new business starts suddenly fell last year, reversing five years of positive trends, while the count of business terminations mounted. Also, the number of major attraction visitors to our State shrank for the second year, as the air passenger count declined over the year, particularly since the events of September 11th.

Industries

Of the 10,800 jobs Connecticut lost over the year, the manufacturing industry lost 9,400 (See chart below). After adding jobs in 1997 and 1998, manufacturing backslid for the next consecutive three years. In fact, 2001's job loss was the largest since 1993. Most of the layoffs were from fabricated metal, industrial machinery, electronic equipment, and printing & publishing manufacturers. Inflation-adjusted average hourly earnings of workers in manufacturing also dropped in 2001 to $9.26 after peaking in 1999 at $9.39. Even the revised Connecticut Manufacturing Production Index declined in 2001 by the largest percentage since 1993.

Wholesale trade, retail trade, and transportation and public utilities (TPU) industries also contributed to the overall employment decline in 2001. Wholesale trade employment, after successive years of increases and peaking in 1998, has fallen in the last three years. The State's deteriorating economic condition became more evident when retail trade and TPU employment decreased last year for the first time during the 1992-2001 period. The 2001 retail sales figure also broke the positive growth trends of the past ten years.

Even the services industry, which had been adding over 10,000 jobs each year in the past ten years, created only 2,400 new jobs last year, and was unable to offset the heavy downsizing in the manufacturing sector this time as it had in previous recessions. With the burst of the Internet "bubble," the number of business services jobs, which had been rapidly growing up until 2000, suddenly retreated last year. In addition, the construction industry was affected by the impact of September 11 and the sinking economy, despite the Fed's aggressive actions in lowering interest rates. This small but very sensitive industry, which had been the fastest growing in the past five years, now showed essentially zero growth.

The government, and finance, insurance, and real estate (FIRE) sectors also added more jobs over the year. Continued expansion of the casinos bolstered the local government sector, which helped to steadily increase overall employment in government. FIRE's employment reached a ten-year high in 2001, and has been gaining jobs in the last five years. Commercial banks and insurance carriers, in particular, fared better over the year.

Labor Market Areas

In 2000, seven of the ten labor market areas (LMAs) in Connecticut added jobs. Last year, however, the opposite was true - seven of the ten LMAs lost jobs. As the chart to the left shows, the percentages of job decline ranged from 0.7 percent in the Torrington LMA to 1.7 percent in the Waterbury LMA. The Danielson and New London LMAs were the only ones with positive employment growth over the year, undoubtedly the result of the casino expansions.

Among the ten LMAs, the largest percentage job decline in construction occurred in the Danbury area last year. All but the Danielson LMA (where there was no change) experienced job losses in manufacturing over the year - the largest percentage decline was in the Stamford area. Two of the areas - Danbury and Waterbury - actually lost services jobs from a year ago. The 2000-2001 changes in employment in all the major industry divisions of each LMA are shown in the table below.

From Here to Recovery

So, what about 2002? Will the current recession in the State and nation prove to be short-lived? Many private economists now say that the current national recession may already be over, based on various upbeat reports such as the fourth consecutive monthly increase in the Index of Leading Economic Indicators and the narrowing of the trade deficit. This would make the current downturn one of the shortest and mildest on record.

As for Connecticut, this year is off to a good start with the seasonally adjusted employment estimate for January showing an increase of 4,300 jobs over the month. There are other encouraging signs of improvement in Connecticut's economy, such as real personal income of residents, which continued to rise even as employment fell last year. Despite the downturn in the State's overall employment, housing permits for 2001 fared well by nearly keeping pace with the 2000 levels. New automobile registrations processed were just slightly down from the record high in 2000. The number of air cargo tons bounced back from a decline in 2000. Over $8.6 billion worth of Connecticut products were exported to other countries in 2001, the largest amount in ten years and rising for the second year. Despite the decrease in the corporate taxes, overall State revenues rose, fueled by increases from the personal income tax and Indian gaming payments.

Plus, there are some encouraging developments in the pipeline, which hopefully will stop the decline in overall employment this year. Electric Boat of Groton, which makes Navy submarines, is planning to add 500 more workers this year for repair and overhaul work, which should help to slow the job decline in the manufacturing sector. Raymour & Flanigan, a furniture chain, is opening new stores, and new Home Depot stores will be built in Bloomfield and Bristol and are expected to add about 850 new jobs in retail trade. The expansion of UBS Warburg, a financial services firm in Stamford, will bring 500 additional jobs in the FIRE sector. Also, the expansion is continuing for hotel, gambling and shopping space at Mohegan Sun, which will involve another 500 new jobs. All these may be hinting that the worst of the job loss is behind us.

If Connecticut's economy does turn around this year, then the current recession could turn out to be the mildest the State has ever experienced. The last recession with the smallest rate of job loss was back in 1982, when employment fell by 0.7 percent.

The year 2001 will permanently become a chapter in American history books for events that include the March recession and September 11. How soon our State's and nation's economic recovery will come remains to be seen. One sure thing, however, is that we are moving towards reviving the economy of Connecticut and the United States of America.

Annual Revisions to Nonfarm Employment and Labor Force Estimates

Every year, nonfarm employment estimates are revised during the annual "benchmarking" process. The benchmarking reanchors the sample-based estimates to the universe levels, which account for approximately 98% of all Connecticut nonfarm employment. This year the revised statewide employment level for March 2001 was 12,100 lower than originally estimated, a downward revision of 0.7 percent. March is used because it is the most recent month for which the universe benchmark data are available when the revision process begins.

Somewhat less industry data detail is contained in this year's goods producing industries employment tables, particularly for the smaller labor market areas. This is due to a change in the basis on which employment estimates are made. The survey methodology, which produces the employment estimates, is transitioning from a quota sample to a probability sample. The probability sample is optimally allocated to maximize the reliability of the statewide estimates, shifting sample out of less densely populated areas into larger ones. Additionally, the overall sample size has been reduced because a probability sample is more expensive to maintain than the older quota sample, thus yielding less detailed industry data. For more on probability sampling see the December 2000 Digest article, "Employment Estimating Methods Evolving."

Monthly labor force estimates, like the nonfarm employment estimates, are considered preliminary and are also revised annually after the end of each calendar year to correspond with the annual average of the findings from the Current Population Survey (CPS), a monthly canvas of households throughout the nation. Unlike the preliminary monthly estimates, which are produced using a regression model designed by the U.S. Bureau of Labor Statistics (BLS), the degree of statistical error can be calculated on the survey data, and is smallest for annual averages. Therefore, the annual average estimates from the CPS become the official estimates, and are used to replace the monthly preliminary numbers. For 2001, the annual average unemployment rate for Connecticut was revised upward by three-tenths of a percentage point, from 3.0 percent (based on the preliminary monthly data) to 3.3 percent. Monthly estimates have been adjusted to reflect this change.

The revised series are available on line at http://www.ctdol.state.ct.us/lmi/ or by contacting the Connecticut Department of Labor, Office of Research at (860) 263-6291.

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Confidence in Connecticut Business Climate Sustained

The latest first quarter 2002 Business Climate Index, released by the DECD, decreased slightly to 66.4, from 69.0 in the fourth quarter 2001 survey. The Index has a maximum score of 100, meaning that all businesses in the state are completely confident. The score of 66.4 indicates that two thirds of Connecticut businesses are confident with current economic conditions.

Connecticut businesses remain confident about the U.S. and Connecticut economies, with the overall mean ranking on the one- to eight-point scale for the U.S. economy at 4.87, and for the Connecticut economy, 5.05.

Just over two thirds (67%) are either very or somewhat confident in the U.S. economy and about two thirds (65%) are either very or somewhat confident in the Connecticut economy, over the next few years. An even larger majority of businesses continues to express confidence in their own business with 77% of businesses saying they are either very (47%) or somewhat (30%) confident in their future.

Compared to other states, a majority of businesses feel that Connecticut is about the same or a better place to run their business, with 80% or more rating Connecticut as better or about the same as other states.

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Housing Update

Commissioner James F. Abromaitis of the Connecticut Department of Economic and Community Development today announced that Connecticut communities authorized 601 new housing units in January 2002, a 29.2 percent decrease compared to January of 2001 when 849 units were authorized. This decrease may be attributed to the one large complex of 341 units permitted in Stamford in January 2001.

The Department further indicated that the 601 units permitted in January 2002 represent a 5.5 percent decrease from the 636 units permitted in December 2001.

Clinton led all Connecticut communities with 26 units, followed by Vernon with 22 and Danbury with 21 units. The Stamford Labor Market Area (LMA) recorded the biggest reduction in authorized units in January (329), a 90 percent decrease compared to a year ago. From a county perspective, all but Fairfield (down 321 units) and Hartford (down 5 units) counties surpassed last year's levels.

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