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Connecticut Economic Digest: May 1997 issue
Southeastern Connecticut Economic Secrets Revealed | Housing Update | Is it deja vu all over again, Yogi?

Southeastern Connecticut Economic Secrets Revealed
by Lincoln S. Dyer, Research Analyst

The peace dividend for the southeastern part of the state in the early 1990's was an alarmingly stagnant economy. The outlook was gloomy for "the submarine capital of the world," which was one of the most defense dependent districts in the nation. The old United Nuclear Corporation in Uncasville (the Mohegan Sun Casino is now located on the site of this former submarine component builder) was shutting down, idling over 1,000 workers. Electric Boat in Groton had strategic plans to cut its workforce to 7,500 from 15,000 or more by the end of 1997 (cuts are still on schedule). The Groton Naval Submarine Base was on the Defense Base Closure list, and the long established New England Savings Bank was heading for bankruptcy. Commissioned regional economic forecasters, as late as May 1993, were spinning tales 25% unemployment, 32,000 jobs lost, and 40,000 people outmigrating from New London county under a worst-case scenario by 1998. Even the best-case scenario of these forecasters had the region losing 20,000 jobs by the end of 1997. What these forecasters failed to anticipate was Yankee and Indian ingenuity.

What actually transpired was that the region banded together as best it could with its available resources to fight and slow down the eventual defense money squeeze. This gave the area time to adjust while the Indian governments stepped in with casino development and job creation to pacify the defense-related recession. The opening of the Mashantucket Pequot's Foxwoods Casino in February 1992 with 2,500 employees really initiated the road to economic recovery for the southeast and, for a while, employment at the fast-growing casino made up most of the job gains for the entire state.

Looking back just a few years ago, it was as if the federal government had its own defense diversification plans in mind Southeastern when it recognized these local tribes as separate governments. Under the Indian Gaming Act of 1988 came the opening of the door to casino gaming and economic self-determinism. It would not even be costly for the federal government. What these Indian casinos spawned was not only jobs (around 17,000 on reservations by early 1997, never mind the thousands of construction jobs that have been created), but also a renewed drive and focus on tourism that suddenly became one of the cornerstones for the economic revitalization of the entire state. In addition, a slot machine agreement was reached with the State that has provided State government coffers with over $500 million since the agreement was signed in January 1993. Other benefits include job multiplier effects extended to other sectors like construction, wholesale trade, transportation, real estate and services.

The land of Uncas, Sachem of the Wolf People (Mohegans), and the birthplace of Benedict Arnold has always had a seasonal tourism aspect to it with attractions like Mystic Seaport and Aquarium, the Nautilus, the bark Eagle, proximity to Long Island Sound and Rhode Island beaches, and great Indian, colonial, and whaling history. Now, with the addition of the Indian casinos (Foxwoods is amongst the world's largest), the area is attracting a whole new influx of people to market to and make the region a distinct destination. The labor market area, which extends from the easternmost point of Westerly, R.I. to Old Saybrook and north to Plainfield, has seen bonafide hotel growth, restaurant and retail expansion, a New York Yankee minor league team and stadium, and a surge in new development proposals that could include a Six Flags Theme Park.

The Indians are also diversifying from gaming and broadening their reach into other sectors of the economy. The Mashantucket Pequots have bought other hotels and restaurants, started a highspeed ferry building facility, a wholesale pharmaceutical enterprise, a trout hatchery, and a gravel operation. The Mashantucket Pequots are also leading a $15 million refurbishment of downtown Norwich and are hoping to use local financing. In mid-1998 they plan to open a $135 million American Indian Museum. The newly up-andrunning Mohegans have also laid the groundwork for alternative businesses like shell fish aquaculture in the Thames River and Long Island Sound. The tribes also have more hotel and gaming expansions on their reservations in mind with sections of New England's largest hotel at Mashantucket opening this summer. This new phase of enlargement at Foxwoods will eventually employ another 2,000 people.

Elsewhere, existing companies outside of defense contract work have steadied their presence in the area with leading employers like Pfizer streamlining some production, but also expanding its research campus in Groton for future growth and better paying jobs (adding 700 researchers over the next few years). Mariner Health has also grown and expanded its presence into downtown New London. Let's not forget the small employers who have generated opportunities and have adapted to the changing business climate while also backfilling lost defense positions.

The area still faces some high economic hurdles, including dealing with the loss of the Naval Underwater Warfare Center in New London. This defense research facility was on the defense consolidation list (over 1,000 personnel moved to Newport, R.I.). The remaining facility, Fort Trumbull, is a choice waterfront parcel. Although it did not get the promised submarine school expansion, the sub base was spared. It will be the eastern port for the Seawolf class of subs, which are being built at Electric Boat. The second of the three planned Seawolf subs will be named the Connecticut.

The closures and consolidation of some state mental facilities will also hurt the area initially, but may eventually be beneficial because of the possibilities these prime pieces of land present for future development. Some area manufacturers are feeling the pressures of Connecticut's higher costs and are moving south. This is to be expected with NAFTA in full gear, causing some of the less sophisticated production sectors like textiles to head for lower wage locales. There are other concerns, too, like Northeast Utilities' Millstone nuclear complex in Waterford that has all three reactors off line right now with safety issues to address before they restart, as well as deregulation to contend with. A recent phenomenon that may be adverse is labor shortages appearing in the area in the less skilled job areas like kitchen help and retail sales. And an all encompassing anxiety of the area is that it will become too reliant on gaming, similar to the dependence the region had on defense contracts in the past. The area suddenly became the third largest in the nation for square footage in gaming space behind Las Vegas and Atlantic City. Southeastern Connecticut has been lucky so far because Massachusetts, Rhode Island, and New York have not really opened their states to full expanded gaming, keeping the high per capita income market of the Northeast fairly exclusive to Connecticut's federally recognized tribes.

Looking back to the heydays of the late 1980's when unemployment rates were below 3% (Fig. 1) and employment peaked in the New London-Norwich Labor Market (Fig. 2) and then to the swift decline of jobs in the early 1990's, one can easily see the stabilizing effect that Indian gaming employment has had on the area's nonfarm payrolls and the region's unemployed. And instead of the predicted outmigration, the area currently has the fastest growing labor force in the state. The mix of jobs, however, has shifted from a goods producing-based labor market, that averaged close to 28% of nonfarm employment derived from manufacturing positions in 1988, to more of a service producing labor region that gets less than 20% of nonagricultural employment from production sectors in 1996. This shift will persist as defense downsizing continues. One concern is the quality of new jobs being created in terms of pay and skills. These new casino and other Indian-related jobs, which require a wide range of skills, appear to average well over $20,000 per year with generous benefit packages included. You be the judge, but do not forget that better paying manufacturing positions have been lost all across the nation and are very hard to replace in the nation's advancing service economy. This is especially true with leaner defense spending budgets, which had artificially kept wages high, becoming the norm.

If the region can play its cards right, it could end up with a more balanced economy that provides jobs from many specialized sectors. One can envision a tourist destination with beaches and recreation areas that include gaming, fine historical attractions, amusement parks, an expanded aquarium, minor league baseball, affordable lodging, and varied dining experiences. This could be built on a core base economy that still consists of the traditional defense manufacturing and subcontracting, stabilized by an augmented pharmaceutical and marine research sector, and complemented by other long-standing production industries like paper, printing, primary and fabricated metals, and instruments and machinery. The banking sector has endured, consolidated, and is now strengthening to help provide the needed capital for growth. Add some modern engines of growth like motion picture production (scenes for Spielberg's Amistad were recently filmed in the region), aquaculture, water transportation and shipping, computer and internet services, financial services, and healthcare to steady the seasonal job fluctuations and for future job evolution. The area has a well-established educational base to draw upon that includes a branch of the state university, a wide serving community-technical college, the Coast Guard Academy, Connecticut College, and advanced degree programs from University of New Haven and Rensselaer Polytechnic Institute (RPI). A well developed and diversified economy could emerge that would prosper in future economic downturns. Connecticut's best kept secret is getting out !

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Housing Update
March: housing permits increase

The Connecticut Department of Economic and Community Development announced that Connecticut communities authorized 909 new housing units in March 1997, a 53.3% increase compared to March 1996 when 593 were authorized.

The Department further indicated that the 909 units permitted in March 1997 represent an increase of 105.6% from the 442 units permitted in February 1997, and that the year-to-date permits are up 44.9% from 1,282 through March 1996, to 1,858 through March 1997.

Reports from municipal officials throughout the state indicate that New Haven County showed the greatest percentage increase in March compared to the same month a year ago: 168.6%, followed by Middlesex County with a 65.7% increase.

New Haven County documented the largest number of new, authorized units in March with 282. Hartford County followed with 226 units and Fairfield County had 174 units. Woodbridge led all Connecticut communities with 93 units, followed by Manchester with 66, and Wolcott with 51.

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Is it deja vu all over again, Yogi?

With the release of the revised employment data by the Labor Department last month, we indicated that Connecticut's economic growth in 1996, as tracked by Connecticut's coincident employment index, was more restrained than what we had reported previously. We noted, in addition, that the coincident index, a barometer of current employment activity, still rose more in 1996 than in prior years of the current expansion despite these revisions. Now, with the release of (preliminary) February data, the January and February movements in the coincident index have returned to a more rapid growth rate, increasing by 3.3 percent in these two months (or just over 20 percent on an annual basis). This acceleration in the movement of the coincident index mirrors a similar pattern in this index last year at about this time.

Connecticut's leading employment index also rose in both January and February. Nevertheless, the leading index, a barometer of future employment activity, continues to bounce around. The leading index has still not moved in the same direction, either up or down, for more than two consecutive months since December 1994. It presently is near its November 1996 peak in the current expansion.

Together the coincident and leading employment indexes are sending signals consistent with a continuation of the current expansion. Of course, Connecticut's recovery hinges critically on the continued recovery of the national economy. Current concerns about if, and when, the Federal Reserve will apply more of the monetary breaks to head off inflationary pressures raise serious questions about the future of the national recovery. If the national recovery heads south, then the Connecticut recovery will most likely follow. But some analysts see our next recession as much less severe than the last due to the restructuring and downsizing experienced in Connecticut during the late 1980s and early 1990s.

In summary, the coincident employment index rose from 82.9 in February 1996 to 89.0 in February 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 88.5 in February 1996 to 89.7 in February 1997. Four index components sent positive signals on a year-over-year basis with a lower short-duration (less than 15 weeks) unemployment rate, higher total housing permits, lower initial claims for unemployment insurance, and higher Hartford helpwanted advertising. The lone negative signal came from a shorter average work week of manufacturing production workers.

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]. Tara Blois [(860) 486-4752, Storrs Campus] provided research support.

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Last Updated: October 15, 2002