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Connecticut Economic Digest: June 1999 issue
1998: A Stellar Year for Housing | Industry Clusters | Housing Update | Connecticut Agriculture: A Growing Industry | Employment: A Tale of Two Series

Introducing the Connecticut Manufacturing Production Index
By J. Charles Joo, Research Analyst

This article introduces a new monthly State economic indicator called the Connecticut Manufacturing Production Index (CMPI), which replaces our current Manufacturing Output Index (MOI). The CMPI (1982=100), by utilizing a new model that captures the trend of rising manufacturing productivity in recent years, provides a better measure than the MOI of overall economic activity in the State's manufacturing sector.

Although manufacturing employment has been declining in the last decade, output (in terms of value added in dollars) did not necessarily do so, primarily because of rising productivity (output per hour) from advances in computers and other innovations. Manufacturing activity is still a very important barometer of current economic conditions in Connecticut as well as for the nation. In 1996, manufacturing accounted for almost one-fifth of the real Gross State Product (GSP), and was third largest in terms of output behind the finance, insurance, & real estate and the services sectors.

Constructing CMPI

Even though measures of manufacturing employment have always been available, this new index is constructed in a way that combines a measure of the industry's use of capital with a measure of employment. Based on the Federal Reserve Bank of Philadelphia's Mid-Atlantic Manufacturing Index, the CMPI employs a production-function methodology in which output is a function of the inputs. Two inputs are assumed: labor and capital. The labor input is represented by the State's manufacturing production worker hours, and industrial electricity sales are used as a proxy for capital. For a more complete explanation of the methodology, contact the Connecticut Department of Labor, Office of Research, at (860) 263-6293.

Productivity Matters

Connecticut's last recession, which lasted nearly four years, concluded by the end of 1992. Over the course of the next six years, aggregate nonfarm employment climbed back to near its pre-recession level. Jobs in the manufacturing sector, however, saw continuous declines from 1985 through 1996, as the once heavily defense-dependent industry began to be dismantled after the end of the Cold War. But, as the chart on the cover page shows, the CMPI diverges sharply from the manufacturing employment index starting in the early 1980s. Manufacturing output grew rapidly every year between 1985 and 1988, while its employment fell in each year of that period. Then, after reaching a peak in 1988, manufacturing sector production declined during the recession years to a low in 1993. From 1994, the level of output started to rise again and reached a new peak in 1998, further widening the gap between the two indexes.

From 1993 to 1996, Connecticut's manufacturing sector lost on average 1.6 percent of its jobs annually, but the CMPI measure of production, which takes into account the use of capital, showed an actual average gain of 1.8 percent yearly. Such a difference between employment and production is attributed to the increases in labor productivity over this period. Despite the downward trend in employment through 1996, as the manufacturing sector restructured and diversified into non-military products and continued to invest extensively in sophisticated machines and fast computers, labor productivity began to increase accordingly, hence producing more with less manpower. In 1997 and 1998, Connecticut manufacturing employment finally turned the corner with 0.5 and 0.9 percent growth. The combination of increased manufacturing employment and continued rise in productivity contributed to the increase of 1.9 and 2.8 percent in the CMPI in those two years.

The annual CMPI was as low as 104.2 in 1983, but reached a record high of 126.5 last year, indicating that Connecticut's manufacturers produced a dollar value of goods and services nearly one third more in 1998 than in 1982. By contrast, a third of Connecticut's manufacturing jobs were eliminated in the last 16 years.

CMPI: A New Economic Indicator

The seasonally adjusted CMPI number of 127.1 in March of this year was 1.0 percent higher than a year ago, while manufacturing employment decreased 1.3 percent. This reflects that our State's manufacturing sector production level actually rose because of the rise in labor productivity, despite the declines in production man-hours.

The new index is updated on a monthly basis, and the previous two months' numbers get revised each month (see page 6, under Manufacturing Activity, for the latest data; monthly historical data back to 1982 are available upon request). This new economic indicator will not only offer a timely and comprehensive measure of the State's manufacturing activity that employment alone would not reveal, but also will provide us with another perspective on the health of the Connecticut's aggregate economy.


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Industry Clusters
Urban Cluster II

Last month in this space we began discussing Michael Porter's concept of industry clusters as drivers of inner city economic development with implications for Connecticut's urban initiative. Cities, according to Porter, possess four competitive strengths that form the base for inner city development. Inner city competitive assets include strategic location; integration with regional clusters; unmet local demand and human resources. This month we discuss the value of strategic location. Despite the decentralization of some industries due to technological advances, many businesses are still location-sensitive as they strive to compete in a just-in-time, service intensive economy. An inner city location typically offers a unique set of advantages for many types of businesses including advanced transportation infrastructure, proximity to a high concentration of businesses, communications nodes, and entertainment complexes. Businesses located in the inner city can make rapid deliveries and provide downtown buyers with exceptional convenience.

Land, although possibly more costly than in the suburbs, can also be cheaper in the inner city than it is downtown. Such factors produce concentrations of successful inner city businesses. Porter cites examples

of food processing and distribution, as well as world-class medical facilities in Boston, or logistics and storage businesses in both Los Angeles and Chicago.

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Housing Update
March Housing Permits Up 10.6%

Commissioner James F. Abromaitis of the Connecticut Department of Economic and Community Development today announced that Connecticut communities authorized 1,026 new housing units in April 1999, a 10.6 percent increase compared to April of 1998 when 928 were authorized.

The Department further indicated that the 1,026 units permitted in April 1999 represent a decrease of seven percent from the 1,105 units permitted in March 1999. The year-to-date permits are up 11.1 percent, from 3,059 through April 1998, to 3,398 through April 1999.

"1999 continues to be a strong year for the housing market in Connecticut," Commissioner Abromaitis said, "I'm encouraged that we continue to surpass 1998 totals."

Reports from municipal officials throughout the state indicate that Tolland County with 40.7 percent showed the greatest percentage increase in April compared to the same month a year ago. Litchfield County followed with a 33.8 percent increase.

Hartford County documented the largest number of new, authorized units in April with 239. Fairfield County followed with 206 units and New Haven County had 195 units. South Windsor led all Connecticut communities with 41 units, followed by Norwalk with 38 and Hamden with 32.

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Connecticut Agriculture: A Growing Industry
By Mark Prisloe, Associate Economist

In 1998, Connecticut reached agreement to become one of three states able to export oysters to Japan. Connecticut oysters are a $62 million dollar industry - larger in total dollar value than the "Bay State" of Massachusetts (output of $9 million), the "lobster" State of Maine (output of $55 million), and the "Ocean State" of Rhode Island (output of $83,000).

Strength of Aquaculture

Connecticut agriculture and aquaculture industries are competing in an emerging global market. Oysters are just one indication of this. Statistically, the $62 million Connecticut oyster industry represents 94 percent of the entire Northeast regional oyster production and six percent of the entire U.S. aquaculture production of $980 million. Even though it is only 0.2 percent of world production, farm-raised products increased to 20 percent of global output in 1998 with the research support of bioscience. Thus farm-raised oysters will be an important contributor to world food sources in the future. The State participates in the Northeast Regional Aquaculture Center (NRAC), one of only five created by Congress in 1987 to increase competitiveness in an emerging global market.

Dollar Value of Output

Overall, the State's Department of Agriculture estimates total output today at $2 billion dollars. Connecticut's agriculture industry produced $893 million in gross state product (GSP) in 1996 (the latest year for which U.S. government data are available), up 11 percent from the previous year's $804 million in GSP. The State's total output as measured by GSP in 1996 was $124 billion. Although agricultural output is less than one percent of this total GSP, it was a growing contributor to the State's economy. The average annual rate of GSP growth for the agriculture industry was 5.3 percent, outpacing the statewide average annual GSP growth rate of 4.9 percent for the period from 1987 to 1996.

Employment

Agricultural employment was at 7,799 in 1996 compared with 2,393 in 1975. Employment also increased six percent from 1995 when it was 7,356. The largest share of these workers were employed in agricultural services, establishments primarily engaged in supplying soil preparation services, crop services, landscape and horticultural services, veterinary and other animal services, and farm labor and management services. Less than 100 were classified as employed in fishing, hunting, and trapping. This figure does not include family labor, seasonal workers, or those in food distribution and retail.

Farms

According to the 1997 Census of Agriculture, the number of full time farms decreased slightly from 1,828 in 1992 to 1,824 in 1997. The total number of farms increased from 3,427 in 1992 to 3,687 in 1997. The amount of land in farms increased from 358,743 acres in 1992 to 359,313 in 1997. The average size of farms decreased slightly from 105 acres in 1992 to 97 acres in 1997.

Establishments

The U.S. Commerce Department defines an establishment as any single physical location of business. On this basis, agricultural establishments numbered 2,127 in 1996 compared with 696 in 1975. The major share of these was in agricultural services. Fairfield County had the largest number of establishments at 781, followed by Hartford County at 442. Windham County, with 38, had the smallest number of agricultural establishments.

"Green Industry" Leader

Connecticut leads the East in horticultural and floricultural sales (the "green industry"), and is home to the largest rhododendron grower in the country. Connecticut also leads New England in the production of eggs, pears, peaches, and mushrooms. According to the State Department of Agriculture, Connecticut's oyster crop is the most valuable in the nation and second only to Louisiana in quantity. There are more horses per square mile here than in any other state, and more milk per cow is produced in Connecticut than in any state east of Michigan.

Earnings

According to the County Business Patterns, Connecticut's annual agriculture payroll in 1996 exceeded $199 million. Thus earnings per employee were $25,619. This compared favorably with the national level of only $20,000.

Exports

Connecticut's 1998 agriculture- related exports totaled $152 million. The share of agricultural exports accounted for more than two percent of the State's total $8 billion in exports. The largest share of agriculture exports was in crops, totaling $114 million in dollar value.

Conclusion

The agriculture industry is a significant contributor to the State's economy. While Connecticut is often not perceived as an agricultural State, it's share of output, growth rate, employment, and the kinds of products in which it leads the nation characterize it as one of measurable potential.

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Employment: A Tale of Two Series

The Connecticut coincident employment index fell slightly from its February peak with the release of (preliminary) March data. The index, however, rose by 4.4 percent over the last twelve months. The Connecticut leading employment index continues to send mixed signals about the future of the Connecticut economy, although the index did increase slightly in both February and March. Those increases ended a six-month period where the leading index rose one month and fell the next.

Many analysts doubt the sustainability of the current expansion in Connecticut. From where will the new workers come to fill the new jobs? The unemployment rate is extremely low and the labor force, except for last year, has grown little in recent years. Measures of employment come from two sources, total employment and nonfarm employment. The labor force, total employment (included in our coincident index), and unemployment rate (in coincident index) numbers depend largely on the national survey each month that samples 500 to 600 Connecticut households. Nonfarm employment (in coincident index) comes from a monthly survey of about 5,000 Connecticut employers. The March ratio of nonfarm to total employment in Connecticut is 99.99 percent (i.e., the two numbers differ by only 800). The national ratio is 95.97 percent. As such, this difference between the national and Connecticut ratios, other things equal, implies an implausibly small pool of the selfemployed in Connecticut or large group of multiple job holders. Thus, this difference may raise some question about what the labor force, total employment, and unemployment rate numbers in Connecticut mean. Could the labor force be larger than reported? The smaller sample of households when compared to the much larger sample of firms suggests that more noise may exist in the household survey results. For a more thorough discussion of these and related issues, see the recent articles by Will McEachern, "Are Labor Shortages Killing the Current Expansion" ( The Connecticut Economy, Summer 1998, pp. 12-13) and Salvatore DiPillo "Defining Employment" ( The Connecticut Economic Digest, May 1999, pp. 3-4).

In summary, the coincident employment index rose from 94.8 in March 1998 to 99.0 in March 1999. 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 insured unemployment rate, and a lower total unemployment rate.

The leading employment index fell slightly from 90.4 in March 1998 to 89.5 in March 1999. Four index components sent negative signals on a year-over-year basis with a higher short-duration (less than 15 weeks) unemployment rate, higher initial claims for unemployment insurance, a shorter average work week of manufacturing production workers, and lower Hartford helpwanted advertising. The fifth component sent a positive signal on a year-over-year basis with higher total housing permits.

SOURCE: Connecticut Center for or Economic Analysis, University of Connecticut. Developed by Pami Dua [Economic Cycle Research Institute; NY,NY] and Stephen M. Miller [(860) 486-3853, Storrs Campus]. Kathryn E. Parr and Hulya Varol [(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