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Connecticut Economic Digest: December 1997 issue
Employment And Wages Grew In 1Q97 | Labor Surplus Areas Offer Advantages To Businesses | Housing Update | The Good Times Keep Rolling Along

Employment And Wages Grew In 1Q97
by Edward T. Doukas Jr., Research Analyst

First quarter 1997 (1Q97) employment figures compiled through the ES-202 Covered Employment and Wages Program, which provides the largest available universe of monthly employment and quarterly wage information, show that Connecticut is continuing to gradually regain employment lost during the "Great Recession" of the early 1990s. Connecticut's Unemployment Insurance covered employment averaged 1,567,019 during 1Q97, an increase of 2.6 percent over 1Q96. The 1Q97 increase marked the third consecutive over-the-year rise in first quarter employment, and was the highest figure recorded for the period since 1990 when total employment averaged 1,616,915. Average employment in 1Q97 remained five percent lower than in 1989, when first quarter employment peaked at 1,648,725.

Comparing 1Q97 private industry employment to 1Q96 shows that two industry divisions registered decreases: manufacturing dipped 0.04 percent, and finance, insurance, and real estate declined 0.8 percent. The construction division showed the greatest employment gain from 1Q96, expanding 12.9 percent. Services and wholesale trade followed, growing 5.6 percent and 3.6 percent respectively. Other employment divisions showed the following increases: transportation and public utilities, 2.5 percent; mining, 2.1 percent; retail trade, 1.7 percent; and agriculture, forestry and fishing, 0.9 percent. A factor that influenced the year-over-year increase in construction industry employment was the relatively mild winter Connecticut experienced in 1997. The favorable building conditions enabled contractors to continue outside work throughout the early months of the year as opposed to 1996 when the State was blanketed with record snowfall. Building permit figures compiled by the Department of Economic and Community Development illustrate this point. The 1,858 new residential housing units authorized for construction during 1Q97 represented a 44.9 percent increase from the 1,282 units authorized in 1Q96. Construction contracts in February 1997 also increased 23.8 percent from February 1996. A look at major industry groups with average employment of 1,000 or more during 1Q97 reveals that business services showed the greatest number growth from 1Q96, increasing by 8,610. Included in business services is help supply services, establishments primarily engaged in providing temporary or continuing help on a contract or fee basis. Help supply services registered an increase of 3,820 in average employment from 1Q96. Establishments that provide temporary or continuing help are becoming increasingly significant in Connecticut. Employment in help supply services grew 30.4 percent from 1Q89, while the number of establishments increased 40.6 percent.

Quarterly Wages

During 1Q97, the average weekly wage for all industries increased 4.9 percent from 1Q96, $746 compared to $711. The weekly wage figure for private sector industries increased 5.7 percent to $750. At $725, the weekly wage for public sector industries decreased 0.2 percent from 1Q96.

All private industry divisions showed increased average weekly wages in 1Q97 compared to the same period the prior year. With a weekly average wage of $1,430, the finance, insurance and real estate division had the largest percentage increase over 1Q96, 14.6 percent. Manufacturing had the next highest percentage increase at 6.9 percent and wholesale trade was third, 4.3 percent. Table on the front page displays weekly wages in Connecticut by industry division for 1Q97 and 1Q96.

Employment By Size Of Establishment

While 1Q97 total employment remained five percent below the level reached in 1Q89, the number of establishments grew 3.2 percent. A review of total employment figures by employer size reveals that employment in smaller establishments has increased, while employment in establishments classified in larger size classes has registered a notable decline. For comparative purposes, 1Q89 employment by establishment size data is utilized. One reason for choosing 1Q89 is that first quarter average employment peaked during that period. Therefore, it is interesting to see how employment characteristics have evolved in relation to the height of the State's economic prosperity. A second reason is that beginning in 1989, the U.S. Bureau of Labor Statistics placed increased emphasis on collecting employment data on a worksite basis. Worksite data provides a more accurate assessment of employment by size of establishment. Comparing current employment by size of establishment data to periods prior to 1989 could give a misleading representation of employment trends by the size of establishment.

In March 1997, employment in the four smallest size groupings increased compared to March 1989. Employment in establishments with less than five employees showed the greatest percentage increase from March 1989, expanding 9.6 percent. The number of establishments in this size classification grew 3.4 percent. Establishments with less than five employees accounted for 59.6 percent of total establishments in 1Q97.

Conversely, the three largest size classes showed decreased employment compared to March 1989. With a 22.4 percent decrease, establishments with 1,000 or more employees showed the greatest reduction. The number of establishments with 1,000 or more employees dropped 19.5 percent. In 1Q97, establishments with 1,000 or more employees accounted for only 0.1 percent of total establishments.

An analysis of wage data by size of establishment reveals that during 1Q97, the average weekly wage in establishments with less than five employees was $648, 13.1 percent below the weekly wage for total covered industries. The average weekly wage in establishments with 1,000 or more employees was $978, 31.1 percent higher than the weekly wage for total industries and 50.9 percent higher than the average weekly wage in establishments with less than five employees.

Clearly, the expansion of small business establishments has contributed significantly to Connecticut's rebounding employment. It is also clear that the employment opportunities small establishments offer are vital to Connecticut's economic stability. However, it is disconcerting that the employer size class that pays the highest weekly wage is also the one showing the largest employment decreases. Will the employment opportunities small businesses offer be substantial enough to compensate for the diminishing positions in larger establishments? Time will tell.

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Labor Surplus Areas Offer Advantages To Businesses
by Rachel Meyerhoff, Research Analyst Supervisor

A new list of labor surplus areas was recently released by the U.S. Department of Labor, Employment and Training Administration. In effect from October 1, 1997 through September 30, 1998, it includes the following 21 Connecticut municipalities: Ansonia, Bridgeport, Derby, East Hartford, Hartford, Killingly, Meriden, Middletown, New Britain, New Haven, New London, Norwich, Plainfield, Plymouth, Putnam, Sprague, Sterling, Voluntown, Waterbury, Winchester, and Windham. This is the first time since 1979 that Middletown is on the list; in contrast, the town of Winchester has the distinction of being listed during 14 of the last 19 years. The main objective of classifying labor surplus areas is to direct federal procurement contracts toward areas that have experienced high unemployment. Employers located in such areas are then eligible for preference in bidding on federal government contracts. Additionally, to aim federal contract dollars more precisely to locations experiencing high unemployment, labor surplus areas are determined on the basis of civil jurisdictions (counties or cities and towns with a population of 25,000 or more) rather than on the broader metropolitan or labor market area basis.

The concept of classifying labor surplus areas dates back to the early 1950s. It was intended to address concerns that high unemployment rates and under-utilization of plants and equipment in some regions would lead to erosion of the mobilization base and adversely affect essential production during the Korean War. Labor surplus areas were at first determined on a monthly basis, then quarterly, and finally on an annual basis beginning in June 1979. Criteria for selection, as well as area definitions, have also undergone a number of legislative and regulatory changes over the years.

The U.S. Department of Labor's primary role has been to determine the areas that qualify, and to disseminate the list of labor surplus areas to State Employment Security Agencies via the Area Trends in Employment and Unemployment publication. Area selection depends primarily on national (for this purpose, the national rate includes Puerto Rico) and local area unemployment rates during the prior two calendar years, where the local area's average unemployment rate for the period must have been at least 20 percent above the national average. In order to qualify for the current list, an area's average unemployment rate needed to be at least 6.7 percent during the period from January 1995 through December 1996; the national average unemployment rate was 5.6 percent for that period.

The U.S. Department of Labor, at its discretion, may waive the eligibility criteria in areas where a sudden, unforeseen rise in unemployment has occurred which is not temporary or seasonal, and is not reflected in the area's average unemployment rate during the reference period. The exceptional circumstance criteria include natural disasters, plant closings, contract cancellations, etc., that can have a substantial impact on an area's unemployment. The State Employment Security Agency must then submit a petition requesting such classification to the U.S. Department of Labor's Employment and Training Administration, providing documented information that the area meets the current conditions and that the exceptional circumstance event has already occurred.

As the chart indicates, no Connecticut areas were listed during the three years beginning October 1988, 1989 and 1990, when statewide unemployment rates on which eligibility was based averaged below 4.0 percent during calendar years 1986 through 1989. Since then, the list has included as many as 25 municipalities (during the two years beginning October 1993 and 1994), the largest number of Connecticut areas since 1979.

The current list includes 1,406 labor surplus areas nationwide, up from last year's total of 1,370. Only two states (Delaware and Iowa) were determined to have no qualifying areas. California has the largest number of areas, 146 in 1997. Among New England states, Massachusetts has the largest number of labor surplus areas listed; Connecticut is second.

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Housing Update
October housing permits up 14.2%

Commissioner James F. Abromaitis of the Connecticut Department of Economic and Community Development announced that Connecticut communities authorized 852 new housing units in October 1997, a 14.2 percent increase compared to October of 1996 when 746 were authorized.

The Department further indicated that the 852 units permitted in October 1997 represent an increase of 15.1 percent from the 740 units permitted in September 1997. The year-to-date permits also are up; 22.6 percent, from 6,418 through October 1996, to 7,871 through October 1997.

"The housing sector is enjoying significant strength," Commissioner Abromaitis said. "The year-over-year increase in permits indicates that long-term economic improvement is continuing."

Reports from municipal officials throughout the state indicate that Middlesex County with 53.5 percent showed the greatest percentage increase in October compared to the same month a year ago. Tolland County followed with a 41.7 percent increase.

Hartford County documented the largest number of new, authorized units in October with 236. Fairfield County followed with 171 units and New Haven County had 152 units. Southington led all Connecticut communities with 45 units, followed by Avon with 33, and Shelton with 31.

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The Good Times Keep Rolling Along

The Connecticut coincident and leading employment indexes continue to sing an upbeat tune about the current and expected future states of the Connecticut economy. The coincident index, a barometer of current employment activity, reached another new peak with the release of (preliminary) September data. The recent upward movement in the coincident index indicates a much stronger recovery than in the first part of the current expansion

The leading index, a barometer of future employment activity, continues its modest upward trend at a slower pace than the coincident index. The leading index also reached its peak in the current expansion with the release of the (preliminary) September data. We will continue to monitor carefully the leading index as any sustained downward movement in this index may signal the next downturn in the Connecticut economy.

As we write this report, the stock market has recently celebrated the 10th anniversary of the October 1987 crash with an over 500 point one-day drop in the Dow Jones Industrial Average. This one-day decline, although large in absolute terms, was not so big on a percentage basis. That is, the October 1987 one-day fall in the Dow was almost 24 percent. The one-day drop in October 1997 was under 7 percent. The notable feature in the recent stock market gyrations was the low-key reaction of Chairman Greenspan and the Federal Reserve. In October 1987, Greenspan immediately made a public statement, pledging that the Federal Reserve was ready to provide any required liquidity. The nearly non-response in 1997 indicated that Greenspan and the Federal Reserve are not too concerned about the current and expected future state of the national economy. If their view is accurate, then this is good news for the Connecticut economy.

In summary, the coincident employment index rose from 85.6 in September 1996 to 93.0 in September 1997. All four index components continue to point in a positive direction on a yearover- 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 89.4 in September 1996 to 90.1 in September 1997. Three index components sent positive signals on a year-overyear basis with a lower shortduration (less than 15 weeks) unemployment rate, lower initial claims for unemployment insurance, and higher Hartford helpwanted advertising. The other two components of the index sent negative signals with a lower average workweek of manufacturing production workers and lower total housing permits 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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Published by the Connecticut Department of Labor, Office of Research
Last Updated: October 15, 2002