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Connecticut Economic Digest: September 2000 issue
Construction Strikes Back | Industry Clusters | Housing Update | National Economy Continues To Baffle Experts

Construction Strikes Back
By Jungmin Charles Joo, Associate Research Analyst

The construction sector in Connecticut experienced an he construction sector in Connecticut experienced an unprecedented boom in the eighties, adding over 31,000 jobs, or 64 percent growth, from 1982 to 1988. But it was also a period of rapid, unsustainable build-up in the real estate market which inevitably led to the construction business failures and job declines during the 1989-92 recession. All of the prior gains in the industry were lost and then some, almost 34,000 jobs (-42%) by the end of 1992. Yet, since 1993, this small but dynamic industry has been steadily adding workers, and by the end of 1999 had reclaimed over one-third of the jobs lost in the last recession (Chart 1).

Although the construction industry accounts for a relatively small part of the Connecticut economy in terms of value added, employment, or income, it is one of the most closely watched sectors for its significant ripple effect on the entire State economy. This article will highlight the sector's output, employment, wages, establishment trends and outlook. Employment and wage data trends on the county level are also analyzed.

Output & Employment Trends

The construction sector made up roughly three percent of Connecticut's gross state product (GSP) in 1997, or $4.4 billion out of the total $134.6 billion. Despite its relatively small size, construction activity is closely watched as an indicator of cyclical movements in the economy.

As Chart 2 on page 2 shows, business cycles in the construction industry are generally more extreme than the cycles for the economy as a whole. Its troughs are deeper and its peaks are higher than those for the State's total output. During the economic boom in the mid-eighties, the construction sector saw rapid expansions in output, outpacing the growth in the overall economy. In 1983 alone, the industry experienced a 24 percent increase, while output rose only five percent in the economy as a whole.

After reaching a peak in 1988, the real estate "bubble" burst; the sector's output began to decline precipitously beginning in 1989, and dropped almost 21 percent in 1990. Then, after four years of declining output (twice as long as the overall economy's two year contraction in 1990 and 1991), the construction industry finally turned around beginning 1993, albeit at a slower pace than the overall economy.

The cyclical nature of the construction industry is also mirrored in employment data. As Chart 3 shows, there exists a very close relationship between employment and output in the construction sector.

Compared to non-construction sectors, construction employment has exhibited more dramatic changes and has reacted more sharply to changes in economic conditions. Changes in mortgage interest rates, the availability of financing, consumer confidence, and overall economic conditions have a greater impact on construction activities and jobs than on most other industries (see Chart 4).

When compared to the nation, construction employment in Connecticut showed similar trends for most of the past 16 years (Chart 5). During the heyday of the 1980's, however, Connecticut construction jobs grew faster than the nation's. Since the recession, our growth has slowed and remained below the national pace.

Employment

The Connecticut construction sector had over 61,000 jobs in 1999, making up 4.2 percent of total private employment. From 1992, when the Connecticut economy began its employment recovery, the construction industry experienced a 27.6 percent increase in jobs. This was significantly higher than the overall private sector job growth of 10.3 percent between 1992 and 1999.

On a detailed level (four-digit Standard Industrial Classification), over two thirds of the industry's subsector categories experienced increases in jobs from 1992 to 1999. The biggest employment growth, in terms of both the number and rate, occurred in the electrical work, single-family housing construction, and plumbing, heating, air-conditioning sectors (see Table 2 on page 4). The biggest job-losing subsector since 1992, on the other hand, was in heavy construction, not elsewhere classified. Currently, the largest number of jobs is concentrated in the plumbing, heating, air-conditioning industry with over 10,000 positions, making up nearly 20 percent of all construction jobs.

Wages

In terms of wages, the construction sector in the State averaged $43,342 in 1999, slightly above the total private sector average of $43,195. Between 1992 and 1999, this sector's average wage grew 21.7 percent, a slower rate than the overall private sector's 33.0 percent. Within construction, the highest wage was paid in nonresidential construction, not elsewhere classified at $57,709 in 1999. The lowest average wage was paid to the workers in the painting and paper hanging industry at $30,510.

Establishments

From 1992 to 1999, the number of construction business establishments actually fell by 11.1 percent, while the number of overall private sector establishments rose by 3.8 percent. The biggest percentage drops occurred in residential construction, not elsewhere classified and operative builders categories. The subsectors with actual net increases in the number of businesses since 1992 include nonresidential construction, not elsewhere classified and floor laying and floor work.

Counties

All of the counties in Connecticut experienced net business losses in construction between 1992 and 1999, with the biggest percentage drop in New London and Hartford (see Table 1 on page 4). In terms of employment, all eight counties added construction jobs in the last seven years, five of which showed faster growth rates than the State overall. As of 1999, Hartford County had the largest number of jobs, home to nearly a third of the total construction jobs in the State. All of the counties experienced wage growth as well from 1992 to 1999. However, employees in only two (Fairfield and Hartford) counties were paid above the statewide average wage last year, which compares to four counties in 1992. New London's wage rate was the highest in 1992, whereas Fairfield County topped the list in 1999. The lowest annual average wage was in Windham County for both 1992 and 1999 (see Chart 6 on page 2).

Outlook

The prospects for a steady, if not even stronger, job growth in this industry seem bright. There are many new, renovation or expansion projects already on the drawing board or in the pipeline, such as the University of Connecticut's "UCONN 2000" project, Eastern Connecticut State University's expansion and renovation, and the upgrading and enhancing taking place at other state universities and colleges and state hospitals, as well as at Yale University. Other projects include: expansion of two casinos, Foxwoods in Ledyard and Mohegan Sun in Montville; development of Pfizer in New London; new Long Wharf Mall in New Haven; expansion of Pearl Harbor Memorial Bridge ("Q" Bridge) in New Haven; expansion of Bradley International Airport; new Renaissance Place complex and Bushnell Theater in Hartford; and numerous infrastructure repairs and road paving projects to the State's major and secondary highways. All of these will undoubtedly generate thousands of new construction jobs (many of which are expected to be filled by Connecticut residents) in the coming years. With the improved economy, these projects will also help to spur many new home building jobs in each region.

As of July this year, the construction sector added 1,600 jobs, or a 2.7 percent increase over a year ago. The construction sector is expected to see sustained growth this year and for the next several years. Shortages of skilled and trained construction workers to fill these positions notwithstanding, the Connecticut Department of Labor projects that the industry will experience the largest growth rate of all the major industry groups, at 20.8 percent, by 2006. Nearly two-thirds (7,080) of the 11,070 additional jobs will be concentrated in the special trade contractors category.


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Industry Clusters
You Belong in CT

The now familiar slogan, "You Belong in Connecticut," had its origin in the Marketing Advisory Board of the industry cluster initiative. A key finding of the Board was the recognition that in an aggressive and competitive global environment Connecticut needed a more cohesive, sustained, and consistent promotional effort. The tag line was chosen for its ability to work as an umbrella message for multiple targeted campaigns both in- and out-of-state.

The first You Belong in Connecticut campaign was launched over the summer (July-September) in 1999 and was initially announced in a press rally held by the Governor's Office. It consisted of radio advertising, outdoor billboards, bus cards, and aerial banners, merchandise (t-shirts, hats, lanyards, frisbees and beach totes), events (including a college fair and Big E booth, a Web site, a full public relations complement to the campaign. The campaign  focused on informing Connecticut's young people (students and members of the workforce) about educational and business/job opportunities, as well as entertainment/ recreation activities and quality of life in Connecticut.

Media outreach resulted in 3,000,000 impressions designed to raise the public's awareness of Connecticut as an attractive place for young professionals. Now SNET and Webster Bank are making significant contributions by carrying the logo in publications and monthly statements.

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HOUSING UPDATE
Permits Up 6.4 Percent From June

Commissioner James F. Abromaitis of the Connecticut Department of Economic and Community Development announced that Connecticut communities authorized 898 new housing units in July 2000, a 8.1 percent decrease compared to July of 1999 when 977 units were authorized.

The Department further indicated that the 898 units permitted in July 2000 represent an increase of 6.4 percent from the 844 units permitted in June 2000. The year-to-date permits are down 14.6 percent, from 6,491 through June 1999, to 5,546 through June 2000.

Fairfield County documented the largest number of new, authorized units in July with 287. New Haven County followed with 157 units and Hartford County had 154 units. Stamford led all Connecticut communities with 162 units, followed by Danbury with 30 and Shelton with 25.

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National Economy Continues To Baffle Experts

The national economy continues to baffle the "old-economy" experts with the larger than expected second quarter growth in gross domestic product. "New-economy" types see the event as just confirming their view that productivity improvements will facilitate further non-inflationary growth. The proof of the pudding, as it is said, is in the eating. So until events trigger a change in paradigm, the "new-economy" story must remain at center stage.

While consumer spending softened somewhat, business investment, especially computers and software, and (unintended) inventory accumulation contributed to the robust growth in the second quarter. The once-in-adecade Census further boosted output. So, the extra growth in the second quarter reflected in some measure one-time events. The big question remains the future movements in consumer spending.

Meanwhile, the Connecticut coincident and leading employment indexes continue to march to slightly different drummers. The coincident index, a gauge of current employment activity, reached a new all-time peak with the release of (preliminary) June data. That is, the current expansion shows no sign of slackening. The leading index, a barometer of future employment activity, continues marking time with no perceptible trend up or down. The leading index, however, has declined for three consecutive months, although the decrease from March to April was small (one-tenth of a point). 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.

Jobs and employment continue to experience healthy gains. Jobs (nonfarm employment) rose by 25,700 over the last twelve months; total employment rose by 31,800. The current extremely low readings on the unemployment and insured unemployment rates suggest that employment remains an important risk to the current expansion. That is, where will the new employment come from?

In summary, the coincident employment index rose from 96.6 in June 1999 to 103.5 in June 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 fell from 89.9 in June 1999 to 88.8 in June 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. Three components sent negative signals on a year-over-year basis with lower total housing permits, and a lower average workweek of manufacturing production workers, and lower Hartford help wanted advertising.

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.

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Published by the Connecticut Department of Labor, Office of Research
Last Updated: October 15, 2002