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Connecticut Economic Digest: August 1996 issue
Defense Spending Down | Housing Update | Employment in private defense-related industries drops again in 1995 | Leading & Coincident Indicators

Defense Spending Down
By William Hesse, Research Analyst

Spending on defense procurement has dropped precipitously in the past decade. The amount spent on procurement contracts is half what it was ten years ago, and Connecticut is receiving only one third of what it did then. It is a measure of the success of the state's defense diversification effort that this is not an ongoing crisis.

The specific numbers are as follows: spending on defense procurement dropped 43% from 1985 to 1995, from $179 billion in 1985 to $101 billion in 1995 (both in 1992 dollars); Connecticut's share of those defense procurement dollars dropped 64% over the same period, from $7.1 billion to $2.5 billion (also in 1992 dollars). A rough estimate of the employment impact is that a $5 billion loss in contracts would be expected to cause a loss of 100,000 jobs. Connecticut's economy did in fact lose just about that number of jobs, suggesting that the recession of the early '90s may have been in large part due to those cuts.

The distribution of defense dollars within the state has been changing as well. Defense contracts are concentrated in three counties: Fairfield, Hartford, and New London.

The level of defense dependency within Connecticut varies greatly. One way to measure dependency is to examine the ratio of defense contracts to total personal income earned in a county. Table 1 shows the ratio of defense contracts to personal income in these two periods. We see from this that New London is extraordinary in its defense dependency. The region has made a difficult transition, reducing its defense dependency by more than 60% in this period.

The towns that have high levels of defense contracts have not changed as much as the counties, however. Among these towns, three of those in Fairfield county increased their defense contracts over this period. Groton, on the other hand, suffered the largest loss of defense dollars, though it remains the second largest recipient in the state. East Hartford suffered a loss almost as large, with less than 15% of its total contract awards the last four years.

As we reported last year, more than 90% of the defense dollars coming into the state came to these ten towns. There has been a slight flattening of the distribution, however, with the remainder of the towns receiving 11.5% in the later period as opposed to 7.9% in 89-91.

Table 1:

Ratio of Defense Contract Awards to Total Personal Income by County
  1989-1991 1992-1995
Connecticut 6.1% 3.0%
Fairfield 6.4% 4.8%
Hartford 5.7% 1.3%
New Haven 0.5% 0.3%
New London 39.0% 14.9%
Other Counties 0.4% 0.4%

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Housing Update
June Housing Permits Decrease

The Connecticut Department of Economic and Community Development announced that Connecticut communities authorized 684 new housing units in June 1996, a 19.1 percent decrease compared to May 1996 when 846 were authorized.

The Department further indicated that the 684 units permitted in June 1996 represent a decrease of 4.5 percent from the 716 units permitted in June 1995, and that the year-todate numbers are down 13.8 percent, from 4,037 in 1995 to 3,481 in 1996.

Reports from municipal officials throughout the state indicated that Windham County showed the greatest percentage increase in June compared to the previous month: 3.3 percent. Hartford County reported the greatest percentage decline: 42 percent.

Hartford County documented the largest number of new, authorized units in June with 151. New Haven County followed with 141 units and Fairfield County had 123 units. Griswold led all Connecticut communities with 32 units, followed by Wolcott with 20 and Rocky Hill and Guilford, each with 17.

The permit activity figure for June included the following statewide amounts by structure type: detached single-family units, 619; attached single-family units, 20; two unit structures, 4; three and four-unit structures, 13; structures containing five or more units, 28.

Year-to-date totals indicate that Hartford County has issued the most building permits through the first half of 1996 with 824, followed by New Haven County with 730, and Fairfield County with 709. Rocky Hill has authorized 118 new permits during this period, followed by Stamford with 100, Southington with 94, Wallingford with 93, and Milford with 85.

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Employment in private defense-related industries drops again in 1995
By Lincoln S. Dyer, Research Analyst

Private defense-related employment in Connecticut dropped by 34,700 jobs or 36.1 percent between 1988 and 1995. Estimated at 61,500 for 1995, it was down from 1988's annual average of 96,200. Nationally, private defense-related employment dropped 24.6 percent or 475,500 positions during the same time period, from 1988's annual average of 1,935,600 to 1,460,100 in 1995.

Private defense-related employment increased nationally from 1988 until the official end of the Cold War in 1990, then it fell off dramatically. Statewide, private defense-related jobs steadily declined from 1988 through 1995. The early lead in defense downsizing, coinciding with the state's recession, was felt prematurely in Connecticut because of its' reliance on big ticket defense programs like submarines and sophisticated aircraft that were the first to get cut in the prospects of a Cold War thaw.

Private industries included in the estimates are: weapons, ordnance and accessories (except vehicles and guided missiles); aircraft and parts; shipbuilding and repairing; guided missiles and space vehicles and parts; tanks and tank components; search and navigation equipment; explosives; and radio and communication equipment. Also included are research industries that contributed to defense such as physical, biological, economic, sociological and educational research and their testing laboratories.

These industries were isolated by the United States Bureau of Labor Statistics (BLS) defense model which concluded that at least 40 percent of the product of these industries was related to defense. Since many defense contractors also have commercial production lines, it is difficult to determine the exact number of defense-related jobs. The United States Bureau of Labor Statistics defense model definitions are used here as a measure of the change occurring in defense-related employment in Connecticut, but should in no way be considered a definitive count.

These well-paying defense-related positions have a large impact on the Connecticut economy and help support many other industries such as trade and services. The job spill-over effect for defense-related positions varies by industry and is very difficult to assess. According to the United States Department of Commerce, the Connecticut transportation equipment industry, which is largely defense-related, has an employment multiplier of 2.5, meaning that for every job in that industry another 1.5 jobs are supported in the economy.

In general, it may be said that for every defense-related job, one to two other employment positions are supported in areas ranging from defense subcontractors to grocery stores, gas stations, real estate agents, etc.

In the future, however, the defense multipliers will be more capital and research intensive, resulting in fewer job gains from prospective increases in defense spending for programs like the new attack submarine and the new jet engine for the next generation of fighters (F-22). These defense job multipliers have weakened over the years because of labor productivity gains and automation efficiencies.

Table 1:

Private Defense-Related Employment
1988-1995 Annual Averages
Year Connecticut United States
1995 61,500 1,460,100
1994 65,900 1,509,700
1993 71,700 1,616,800
1992 80,200 1,750,200
1991 87,800 1,873,700
1990 91,800 1,960,800
1989 95,300 1,953,400
1988 96,200* 1,935,600

* A labor-management dispute in the third quarter of 1988 at a major employer considerably impacted private defense employment. The above figure does not include the data for months the company was involved in the labor-management dispute.

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Leading & Coincident Indicators
Leading index continues to yo-yo

Connecticut's leading employment index continues to yo-yo with the release of the (preliminary) May data, rising to nearly its highest level in the current expansion. The coincident index continues to send a positive signal, rising once again and not having fallen on a month-to-month basis since December 1995.

The coincident index, a gauge of current employment activity, sent strong positive signals in January and February, largely due to the benchmark revisions and the February surge in employment data, and after pausing briefly in March, continued to move upward in April and in May. The coincident index accelerated its upward movement this year from its prior slow increase during the current recovery. No end is now in sight for the current recovery, based on the coincident index.

The leading index, a barometer of future employment activity, experienced its largest one-month fall in January and rebounded dramatically in February. It rose in March, fell in April, and popped higher in May. Nonetheless, the leading index currently matches its level in December 1995 and exceeds its level in every other month over the past two years, save two, December 1994 and September 1995.

The May release, therefore, provides increasing support for a strengthening of the current recovery, at least in the short term. The longer-term expectation for the current recovery remains somewhat uncertain -- as long as the leading index continues to yoyo. Whether its next major move is up or down still remains in doubt. Future monthly data will sharpen the focus on our view of the future of the Connecticut economy.

Compared to a year ago, the coincident employment index rose from 84.7 in May 1995 to 89.5 in May 1996. All four index components continued to point in a positive direction on a year-overyear basis with higher nonfarm employment, higher total employment, a lower total unemployment rate, and a lower insured unemployment rate.

The leading employment index rose from 87.7 in May 1995 to 89.2 in May 1996, or somewhat below its previous peak of 89.4 in September 1995. Only one component sent a negative signal on a yearover- year basis -- a lower average work week of manufacturing production workers. The other components sent positive signals with lower initial claims for unemployment insurance, higher Hartford help wanted advertising, a lower short-duration (less than 15 weeks) unemployment rate, and higher total housing permits.

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