New data shows Connecticut’s economy was damaged more severely than most economists originally thought in the last recession, according to a provocative new report released Wednesday by the University of Connecticut’s economic think-tank.
The latest analysis from the Connecticut Center for Economic Analysis warned the state “has an even steeper hill to climb” and could see little or no net job growth over the next 18 months, a grim prospect as Gov. Dannel P. Malloy looks ahead to a re-election campaign in 2014.
And the study suggested that the state technically might still be in a recession.
The center also hit again on one of its favorite themes, urging the Malloy administration to mobilize unused research and development and other related business tax credits to underwrite major capital projects to grow jobs.
“The new understanding of the depths from which we are recovering re-enforces … the absolute necessity for Connecticut to pursue aggressive policies and sustained investments to accelerate recovery and job creation,” the report states.
It added that there are fewer jobs in Connecticut now than in 1988, calling it “a generation without job creation.”
The report hinges on new data from the National Bureau of Economic Analysis, which provides information on Connecticut’s real gross domestic product, or the value of goods and services produced by its businesses, adjusted for inflation. A recession generally is described as two consecutive quarters of declining GDP.
Many economists say the last economic downturn, which became known as the Great Recession, began nationally in December 2007 and ended by July 2009. In Connecticut, which tends to both enter and leave economic downswings later than the national average, the recession generally is charted between March 2008 and the first few months of 2010.
But the UConn center noted that the National Bureau of Economic Analysis recently “sharply lowered” its seasonally adjusted numbers for Connecticut for 2006 through 2010.
The low point, which came in the fourth quarter of 2009, was supposed to be a GDP of $204.5 billion. But new data show the state’s rock bottom of economic output was actually about 7 percent lower, coming in just above $190 billion.
Based on the national bureau’s numbers, Connecticut fell into the Great Recession as early as the third quarter of 2007.
And if the measure of a recession’s end is regaining the GDP level held prior to the decline, then it could be argued the Nutmeg State is still in a recession, said Fred V. Carstensen, an economist and the UConn center’s director.
Fred V. Carstensen, director of Connecticut Center for Economic Analysis at UConn
“We thought we’d recovered,” Carstensen said, “but we never really got out.”
A downturn in the state’s finance, insurance and real estate sectors was a precursor to the recession, which also strongly hit certain other services, manufacturing, transportation and utilities.
And while services and manufacturing have enjoyed a “relatively strong” recovery, improvement in finance, insurance and real estate “appears to be fizzling out,” the report states.
Not all is gloom and doom, though, with permits for new housing construction recovering strongly during the first half of 2012, the report states. And that comes despite new federal data showing the median price for single-family house sales fell more sharply in Connecticut during the second quarter of this year than in any other state.
The center projects economic growth rates of 0.6 percent from now through the first half of 2013, after which it should climb to 1.3 percent by 2014.
Carstensen described this as “very weak growth” that could lead to a meager 5,000 new jobs being added over the next 18 months, and possibly less if the Federal Reserve doesn’t take steps to control escalating interest rates. If true, the state’s economic troubles could linger until the early months of the 2014 campaign.
“The administration has a much larger problem to address than they’d realized, than we had realized,” he said.
The center has praised Malloy for several of its biggest economic development efforts, including developing a bioscience research initiative with the Jackson Laboratory and the University of Connecticut Health Center in Farmington. But it also repeatedly has urged the administration to mobilize a portion of the nearly $2.5 billion in so-called “stranded” business tax credits that have built up on the state’s ledger over several decades.
These are credits that companies are entitled to, but can’t claim because they don’t earn enough or they don’t owe enough taxes to use the benefit.
Carstensen insists that by tying credits to job growth targets, state officials could ensure that new income, sales and other taxes generated by new workers would offset the cost of any corporate tax relief provided to businesses.
But when the center made that argument in its May report, state Department of Economic and Community Development Commissioner Catherine Smith was openly skeptical.
“Mr. Carstensen’s assertion that unleashing stranded tax credits is the cure-all for our economy is off the mark,” Smith said at the time. “These credits are not ‘entirely self-funding’ because they reduce state revenue when redeemed and there is no evidence that the holders of unredeemed credits would take advantage of Professor Carstensen’s scheme at all, much less at a level that would create tens of thousands of new jobs.”
The commissioner added that Connecticut’s economic turnaround would depend on “a comprehensive, strategic approach that addresses all the issues that make us more attractive to workers and companies alike, including education, economic development, housing, innovation, and worker training — something the governor has long been committed to.”