Connecticut’s economic recovery will be steady yet continue to lag behind that of the Northeast and the nation over the next four years, according to a new forecast released Wednesday in cooperation with the Federal Reserve Bank.

The report prepared by the New England Economic Partnership also warned that federal budget cuts and the threat of a shutdown, coupled with higher federal payroll and income taxes, should keep 2013 job growth in the Nutmeg State at last year’s level.

Economists expect slow job growth here in financial activities, retail, construction, health care and in the government sector. Manufacturing and information technology should show few gains, if any, while analysts also warned that Connecticut’s casinos should brace for growing competition from surrounding states.

“You’re going to see a decent three or four years for the state of Connecticut,” said retired Fairfield University professor Edward Deak, chief economist for the partnership’s Connecticut forecast.

“I think it’s pretty good,” he said. “It’s just not as effervescent as” the region’s or the nation’s economic track. 

Still missing half of the jobs from last recession

Connecticut can expect jobs and household income to continue to grow, though it still has a long way to go to offset the losses of the last recession.

Connecticut has regained just 62,200 of the 121,000 jobs it lost from 2008 through 2010 — a 51.3 percent recovery rate that badly trails the national average of 78.2 percent.

The new analysis projects Connecticut will gain 14,400 jobs in 2013, barely exceeding the 14,100 gained last year.

Deak also predicts job increases of 18,700 and 24,900 for 2014 and 2015, respectively, with Connecticut not recovering all positions lost in the “Great Recession” until the second quarter of 2016.

The state’s unemployment rate, which stands at 8.1 percent, should reach 7.9 percent by year’s end, dropping to 7.5 percent in 2014.

Connecticut’s economic challenges remain clear

We are an old state and our workforce is not growing,” Deak said. “We are a high tax state. We’re a high cost to do business state.”

Connecticut has grown some jobs through major state taxpayer-funded investments into businesses, he said. But most job growth here is “because we’re being dragged along by the national recovery,” Deak said. 

And many sectors of the Connecticut economy simply are not rebounding as quickly from the last recession as they had from prior economic downturns.

Job cuts in the banking and insurance industry have limited growth in financial activities.

And Deak predicted that the insider trading scandal and $1.2 billion penalty imposed this month on SAC Capital Advisors, Stephen A. Cohen’s hedge fund, would translate into “substantial” job losses in that group’s Stamford offices.

The state’s residential construction market has been recovering, but a 20 percent office vacancy rate in Fairfield and Hartford counties has stalled commercial building construction.

And even with federal health care reform expected to trigger a tremendous increase in demand for services as thousands more become insured in Connecticut, the health care sector continues to shed support jobs.

Consolidations and mergers of medical centers and innovations in electronic recordkeeping are “cutting down on the number of support people,” Deak said.

Connecticut also faces new competition for its gaming industry.

Rhode Island has approved two casino expansions. New York has seven new casinos in the works and Massachusetts has four.

This is going to be a “significant drag” on industry revenue here, which also will harm the state budget, Deak said. That’s because Connecticut receives 25 percent of the video slot revenue from the two Indian casinos in the state’s southeastern corner.

Sequestration, Obamacare are ‘wild cards’

One of the big “wild cards” in Connecticut’s economic future — as is the case with most states — involves decisions made on Capitol Hill.

“I am concerned with what happens with the second round of sequestration,” Deak said, referring to largely across-the-board federal budget cuts triggered by debt levels.

The 2014 cuts include about $10 billion from the defense industry, a move that certainly would impact Connecticut, Deak said.

He also predicted a second round of sequestration would cost Connecticut more social service jobs in 2014 — particularly given the many nonprofits that rely on federal funding. “I think it’s going to get worse with the second round,” he said.

And though he was optimistic that Congress would avoid another government shutdown in early 2014, Deak added that if lawmakers even flirt with another debt ceiling crisis, it could weaken confidence among investors.

“The drumbeat of uncertainty … will generate a lot of bad business news,” Deak said, “and keep people worried.”

Peter Gioia, the chief economist for the Connecticut Business & Industry Association, said Wednesday that while he doesn’t dispute most of the forecast, it should emphasize the major growth of the past year in the stock market. This could bolster not only Connecticut’s economy, but the state budget as well, he said.

More than one-third of all state income tax receipts are tied to earnings reported quarterly, and most of those dollars involve income from capital gains, dividends and other investments.

The New England Economic Partnership is a nonprofit organization providing economic analysis for the region and backed by a broad coalition of industries, utilities, insurance providers, health care organizations, academic institutions and government agencies including the reserve bank.

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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