Connecticut’s “tepid recovery” could pick up steam in 2014, buoyed by the national and regional economies that continue to outperform the Nutmeg State’s, a leading economist told the state’s business leaders Tuesday.
But Nick Perna, economic adviser to Webster Bank, also warned that growing deficit projections for state government following the 2014 elections could derail any gains.
“Things aren’t great here in the Nutmeg State, but they aren’t as bad as some would make them out to be,” Perna told a crowd of nearly 500 gathered at the Hartford Marriott for the Connecticut Business & Industry Association’s 2014 economic summit.
Connecticut gained between 15,000 and 20,000 jobs over the past year and has recovered about half of the 121,000 positions it lost in the last recession. Perna said the Nutmeg State should gain more than 20,000 jobs this year on its way to adding as many as 35,000 positions in 2015.
“At least we’re moving up -– maybe not enough –- but we’re moving up.”
It won’t be until 2017 when all jobs lost in the last recession are recovered.
Perna also noted that some economists are expecting personal income growth here to far outstrip inflation over the next two years.
Connecticut will be helped by a national recovery that is ramping up faster than its own. “We are pulled through by good economic growth” nationally, he said.
Eric Rosengren, president and CEO of the Federal Reserve Bank of Boston, told the summit that the nation’s economy should grow by about 3 percent this year, up from 2 percent in 2013. And while the country’s unemployment rate should drop below 7 percent, “we’re still pretty far away from where we need to be.”
Still, Rosengren added, consumers and investors are growing more confident as the stock market continues to rise and the housing sector of the economy shows resilience.
But Perna also warned there are two big threats to Connecticut’s economy this year, and one rests with its own government.
Connecticut’s economy hasn’t just lagged the nation’s since the recession, but also those of all neighboring states except for Rhode Island. The difference was that New York, New Jersey and Massachusetts –- Connecticut’s chief competitors -- all had less severe state budget problems to deal with coming out of the recession four years ago.
“There’s no getting rid of a $3 billion deficit without inflicting pain” on the economy, Perna said, referring to the $3.67 billion shortfall Gov. Dannel P. Malloy inherited when he took office in January 2011.
And though projections of a shortfall haven’t matched the record-setting amount from three years ago, the $1.1 billion deficit nonpartisan analysts are forecasting for the first new state budget after the 2014 elections has the potential to derail Connecticut’s recovery.
Borrowing and other fiscal gimmicks used to cover state government’s operating costs until after an election helped to amass the 2011 shortfall, and many of the same practices were used to create the new one.
Like Groundhog Day
The Webster Bank economist compared it to “Groundhog Day,” the 1993 comedy about a weatherman forced to re-live a bad winter day in Punxsatawney, Penn., again and again. “At least Bill Murray made you laugh,” Perna said. “This makes you cry.”
But if state officials continue to grow the post-election deficit, they risk doing further harm to Connecticut’s business environment, Perna said. “It just saddens me to see us, by virtue of our own decisions, where we are.”
Partisanship and political brinksmanship at the national level also could sink the national recovery, and Connecticut’s along with it, in 2014, Perna said.
Though buoyed by the recent compromise on Capitol Hill to craft a new budget and avoid a federal government shutdown, Perna said that will mean little two months from now if both parties again pull the nation close to the edge of defaulting on the national debt.
“It’s dangerous to even think about it,” Perna said of an actual default, predicting it would spark a global economic collapse and make the economic crisis of 2008 look like “a picnic in the park.”