Every year at this time it is customary to inquire what may be ahead for the U.S. and Connecticut economies. This article attempts to review what key economic indicators portend and make an economic forecast for 2004. The following key indicators will be considered: consumer confidence, spending, construction and housing starts, employment and unemployment, inflation and interest rates, and Gross State Product (GSP).
Since consumer spending represents about two-thirds of Gross Domestic Product (GDP), it is important to consider consumer confidence. This indicator of consumer attitudes is reflected by an index (1985=100) measuring consumer expectations. In October, the New England index stood at 73.6, down 0.8 percent from October 2002 when it was 74.2, but up 0.3 percent from its level the previous month. This shows little change from a year ago, but movement this year is trending in a positive direction. The U.S. consumer confidence index was 81.1, up 1.9 percent from a year ago, definitely a positive indicator for the U.S. economy. A Connecticut measure, the Webster Consumer Confidence Index, released quarterly by the University of Connecticut, jumped 16 percent from the second to the third quarter. This factors positively in the forecast.
Spending makes the largest contribution to GDP. Retail spending in Connecticut in July 2003 (latest available data) amounted to $3.3 billion, down 2.9 percent from July a year earlier, but up 4.5 percent for the year to date through July from $29.07 billion last year to $30.37 billion this year. This is a sign that Connecticut consumers' increasing confidence is translating into higher retail sales.
Passenger and freight air traffic are two other indicators of potential visitor spending and production statewide. Passengers, at 559,920, were down 1.6 percent from October a year ago when they were at 569,203, and also down 4.9 percent for the year to date. This has been a persistent weakness since September 11, 2001. Air cargo increased 3.6 percent from 13,179 tons in October a year ago to 13,657 tons in October 2003, but has not kept pace with 2002 on a year-to-date basis. This is another indicator of weakness, not only for the airline industry, but also of the State's economy. This factors negatively in the forecast.
Construction and housing
Construction and housing permits have large influences on the economy and enter into investment as a contribution to GSP. Housing also is associated with new spending on furnishings, appliances, or other "big ticket" items. The construction contracts index (1980=100) in October was 367.8, down 9.2 percent from last October, but it has seesawed all year making it a difficult indicator to interpret. However, it flirted into the 400+ level in August and reached 565 in June, the highest level seen in any month since February 2000, definitely a plus. Likewise, housing permits, which are reported monthly by DECD, soared 21.3 percent in October, boosted by strength in consumer income and low interest rates, to push year-to-date permits above last year's level at 8,390 units compared with October 2002's 8,231 units, a 1.9 percent gain. Taken together these are positive signs for Connecticut's economy because they mean growth in GSP.
Employment and unemployment
Of particular importance to households and the economy is overall employment. Jobs mean income to households and income means spending for the economy. In the twelve months through October, total nonfarm employment decreased by 19,200, largely the result of manufacturing job losses. Only the education and health services sector saw an increase in employment from a year ago. The October unemployment rate, at 4.9 percent, was also higher than a year ago. However, employment and the unemployment rate both improved from the previous month, a turn in a positive direction. The unemployment rate should drop further in 2004, but current strong productivity means producers can increase output even without job growth. The dropping unemployment rate is a plus for the forecast.
Inflation and interest rates
Much has been made of the low interest rates that have prevailed all year. This has resulted from a Federal Reserve policy that has kept the key federal funds rate low to maintain the positive economic momentum gained in the last year. One reason the Fed can continue this policy is that inflation, as measured by the rate of change in the Consumer Price Index (CPI), has been low. At a mere 2.0 percent in October, both purchasing power and the ability to borrow cheaply to finance business investment will work in favor of the recovery, helping both the U.S. and Connecticut.
Coincident and leading indicators
The Conference Board's Business Cycle Indicators move ahead of, coincide with, or lag behind the overall economy. A composite leading index (10 indicators) in October, increased 0.4 percent to 113.6 (1996=100) and "suggests that strong economic growth should continue in the near term." Likewise, the Connecticut series of indicators, which are reported in each issue of the Digest (at page 4), "paint an encouraging picture for the State economy." Moreover, the rise in the State's leading index from 113.3 in September 2002 to 114.69 in September 2003 forecasts economic growth.
Gross State Product
Finally, the single most comprehensive indicator of the State's economic performance is GSP. Similar to the GDP for the nation, it is a measure of the total dollar value of all final goods and services produced in the State. The Bureau of Economic Analysis releases the Connecticut's GSP with a roughly two-year lag, and the currently available estimate for 2001 is $166 billion. The trend in the GSP has been upward. In fact, the GSP growth rate in the last ten years has averaged 5 percent. On this basis, GSP can be expected to reach $190 billion in 2004. One other major contributor to the GSP is exports that totaled $8.3 billion in 2002 and now exceed defense contracts as a source of economic fuel. Based on the GSP trend, the State can expect stronger growth in 2004.
Overall, the outlook for 2004 is positive and encouraging. It is true, not all economic indicators are up to par and weak job growth is a major drawback to a stronger recovery. But as confidence grows that a recovery is real, employment should pick up. Based on recent experience, positive growth can be expected in such important sectors as transportation and public utilities; finance, insurance, and real estate; and government. Absent any terrorist attack, energy price surprises, or other exogenous shocks such as higher federal and state budget deficits or statewide mergers, there is much reason for optimism.
For nearly 370 years, Wethersfield has been a thriving community, a desirable place to live, work, run a business, go to school, and raise a family. Centrally located on the Connecticut River, Wethersfield has its niche in history, being "Ye Most Auncient Towne" in Connecticut, as set out by the Code of 1650 - "Colonial Records of Connecticut." Here in May 1781, at the Webb House on Main Street, Washington and Rochambeau planned the battle of Yorktown, which culminated in the independence of the then rebellious colonies. In "Olde Wethersfield" over one hundred fifty beautiful and distinctive Colonial homes stand as a symbol of the rich New England heritage.
The latest annual average data showed that there were 10,198 jobs in the town, down slightly from the prior two years. The information industry sector is where most of the job losses occurred, but they were partly offset by strong gains in the manufacturing and construction sectors. The total number of businesses in Wethersfield increased in 2002, primarily from growth in the professional and business services and education and health services sectors. The average annual wage for workers in all industries also rose slightly over the year to $39,858. Sectors with increased wages include information and financial activities, while manufacturing and professional and business services wages fell from a year earlier. Information sector employees working in Wethersfield were paid the highest average annual wage at $62,375 in 2002. On the other hand, those in leisure and hospitality, with many working part-time, were paid $14,408.
Wethersfield's population had been declining until 1997, but then climbed to 26,390 in 2002, a 2.7 percent increase from ten years earlier. The number of town residents who were employed declined from 1992 to 1998, then rose the next two years before dropping again in 2001 and 2002, remaining at a level below that of 1992. However, even sharper declines in the number of unemployed persons in the town caused the jobless rate to fall significantly, to 3.4 percent in 2002, nearly a 50 percent drop from a decade earlier. In fact, Wethersfield's 3.4 percent was lower than the rates of the Hartford LMA (4.5 percent), Connecticut (4.3 percent), and the United States (5.8 percent). And, while the number of new housing permits authorized has been falling since 1998, retail sales of Wethersfield businesses have been rising, increasing by 33 percent over the decade.
The town is in the midst of creating a series of new economic development programs, which are based upon the implementation of "The Economic Development Strategic Plan" created in late 2001. It has just recently re-invented its Economic Development and Improvement Commission (EDIC) to spearhead this effort. The EDIC has prepared a Business Tax Incentive Policy for Town Council approval and is working with local financial institutions on a Business Loan Program and other financial incentive possibilities.
The principal focus of the Plan is the improved development of Wethersfield's primary business corridors, which are the Silas Deane Highway and the Berlin Turnpike, through adaptive reuse. The town is comprehensively revising its zoning regulations and map to encourage economic development. Additionally, it recently created a Tourism Commission to actively promote and market the variety of historic attractions that the town has to offer. This will assist in achieving the town's goal to create more diversity in its economic base. Come, Wethersfield is open for business.
Commissioner James F. Abromaitis of the Connecticut Department of
Economic and Community Development (DECD) announced that Connecticut communities authorized
766 new housing units in November 2003, a 0.6 percent decrease compared to November
of 2002 when 771 units were authorized.
The Department further indicated that the 766 units permitted in November 2003 represent a 31.7 percent decrease from the 1,121 units permitted in October 2003. The
year-to-date permits are up 1.7 percent, from 9,002 through November 2002, to 9,156 through November 2003.
Only Bridgeport and Danielson Labor Market Areas showed the net gain of 83 and 7 units respectively
compared to a year ago. Milford led all municipalities with 69 new units, followed by Trumbull with
34 and Winchester with 30. From a county perspective, New Haven had the largest number of units authorized (178).
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