Correction: An earlier version of this story listed incorrect average annual job growth percentages for the years 2011 through 2018. The correct percentages are listed in the graphic below.

Economist Don Klepper-Smith CTMirror.org file photo

A recent report showing the state grew far fewer jobs in 2018 than originally anticipated is only the tip of a more dangerous economic iceberg, one key Connecticut economist warns.

The revised data from the Department of Labor is the latest link in a chain that demonstrates job growth — according to one metric — is slowing to its lowest level in nearly a decade, according to Don Klepper-Smith, chief economist with DataCore Partners.

“If the job numbers are the canary in the coal mine,” said Klepper-Smith, who was the state’s chief economic adviser in the late 2000s under Gov. M. Jodi Rell, “then you have a clear deceleration in the Connecticut economy.”

Economists and labor officials routinely compare employment levels at key points in time — such as jobs filled now versus jobs filled last March.

But while these points provide insight, they also have limitations. For example, a year-over-year comparison focusing on December could be skewed by new trends in temporary, retail staff to help with the holiday shopping rush.

By calculating average annual job growth — taking into account the year-over-year job gains recorded for each month — a pattern becomes clear, Klepper-Smith said.

Connecticut has followed a steady progression of lessening growth as it has climbed out of the last recession.

In other words, average annual growth in 2012 was good, but not as good as average growth in 2011.

The only exception to this downward trend came in 2015, when job gains ticked upward modestly.

At first, it appeared Connecticut had bucked this trend again in 2018.

But the Labor Department reported earlier this month that the 19,900 jobs Connecticut appeared to have gained between December 2018 and December 2017 was only about half of that total.

Once that downward adjustment was applied to the annual average for 2018, Connecticut’s job growth rate was just 0.1 percent, Klepper-Smith said.

Connecticut is the only New England state that has not recovered all of the jobs it lost during the 2008-2010 recession. The latest numbers show it has regained 81 percent of the 120,000 positions lost during that time.

Former Gov. Dannel P. Malloy often noted Connecticut was focused on shrinking its public employment during this recovery, and that the private-sector here has fully recovered.

But some other states have regained enough private-sector jobs to both offset any losses in this area and in the public sector.

At its current job growth pace, Connecticut likely won’t have regained all jobs lost until mid-2020, Klepper-Smith said. But there’s a 70 percent chance — he added — that Connecticut will be in recession by the end of 2020.

Peter Gioia, economic adviser to the Connecticut Business and Industry Association, said “obviously the economy is slowing,” but added he doesn’t believe it’s at risk of slipping into recession in the next two years.

The national economy still is projecting 2 percent growth “and the price of oil is dirt-cheap,” he said.

But Gioia added the slipping job growth trend is a concern, particularly as retailers and other companies use technology to replace low-skilled workers. “As wages go up, it will only price some people out of the market,” he said.

Still, what happens if the recession arrives before a full job recovery arrives in Connecticut.

“There are cracks in our economic foundation that have not been fully acknowledged,” Klepper-Smith said, adding that they will be exposed.

One of those cracks, according to University of Connecticut Professor Fred Carstensen, is the lack of income recovery.

In other words, “even when we are gaining jobs, we haven’t always been gaining income,” Carstensen said. “Job creation isn’t the same as economic growth.”

Economists look not just at jobs, but where they are located.

State income tax receipts fell from almost 3.9 percent of household earnings in 2012 to 3.6 percent in 2014, the last year for which data is available.

How did that happen? Much of that decline, according to Carstensen, involves Connecticut’s struggle to regain financial services sector jobs lost in the last recession. Some of those displaced Connecticut residents found new jobs — in New York and New Jersey.

Equally important, he said, “we’ve been losing high quality jobs throughout this recovery. Jobs that paid $80,000 to $90,000 are being replaced by those that pay $55,000.”

Carstensen, Klepper-Smith and others also noted there are signs that Americans again are failing to prepare for the next economic downturn.

State Comptroller Kevin P. Lembo used his last state budget projection to also cite a recent report from the Federal Reserve Bank of New York. That report noted that household debt, nationally, has grown for 18 consecutive months. As of December 31, Americans owed a record-setting $13.54 trillion on mortgages, auto loans, student loans, credit cards and other debt.

This trend is starting to resemble a debt problem that existed prior to the last recession, Lembo said.

“We know what followed,” he said, “and we know that we want to be careful about the ability of Connecticut households being capable of surviving another recession.”

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Keith M. PhaneufState Budget Reporter

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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11 Comments

  1. Our state politicians should take some credit for this trend. We are in the third or fourth massive tax and spend cycle which clearly is helping with economic prosperity. Social programs like medical coverage for illegals and paid medical leave helps us as well. I for one look forward to spending another 0.5% of my salary on paid medical leave, as well as paying tolls to continue the robbing of the transportation fund to fund operations. Sin taxes and less sales tax exemptions should also have stimulative effects on our economy.

    I look forward to hearing about new and exciting ways our state legislatures can tax and spend us into prosperity without cutting any cost in our state budget.

  2. Increases in the defense budget have been propping up Connecticut’s economy, and those will continue through 2020 at least. So it’s difficult to see why there’s a 70% chance of recession by then.
    Connecticut is a poor state with pockets of wealth. And it’s not creating many new pockets. Eventually, as younger people move away to start careers and businesses relocate work or headquarters elsewhere, Connecticut can expect to decline.
    But the economics of this two year budget seem to me likely to be stable.

  3. Would be helpful to list major new business investment w/new jobs each year in CT. A better guide to our anemic job market than just counting jobs. It’s “good well paying jobs” that are needed. And they don’t seem to arrive at CT.

    1. The only substantive new jobs in Connecticut are heavily subsidized by the state; virtually all of downtown Hartford’s development has 70%+ subsidies/loan guarantees by the CDRA, creating an artificial economy that is not sustainable.

      And UConn Athletics which runs a $41 million annual deficit wants the “state” to pay $250 million for the renovation of the XL Center so it’s basketball team can play 10 games there a year.

      Connecticut is a small state with a highly unattractive business environment and a legislature that only looks out for the interests of the public service unions at the expense of those decreasing number of residents who pay for it.

      1. On what data are you basing your comments–beyond UConn’s deficit-ridden athletics? Public sector salaries have been frozen for years; state and municipal employment has shrunk. Withholding data for 2018 suggests the quality of jobs has been improving–and that could not come from the public sector given the salary freeze.

      2. 7000 public sector jobs shrunk are from the casinos which are considered “tribal government”. Honestly if a teacher or fireman is laid off in the New Haven area it is on the news. If out costs of government are going up(unarguable) yet the headcount is going down (seems unlikely) why would we say paying more for less service is a sign of good management. With these recent job revisions downward in Conn I doubt that the first few quarters of 2018 were good anyway. I can look at “openthebooks.com” and see people I know going from 60 to 85k since 2011(multiple people) without a promotion so the freeze is dubious. Sorry to be so negative but in Conn negatively is never unfounded since the late 1980s starting with the “colonial realty” hoax from Hartford

  4. Weak job growth in CT is hardly news. What everyone should be thinking about is that CT has not created any net new jobs in over 30 years — CT has the same number of jobs today (~1.7 million) that it had in 1988, notwithstanding job increases during the same period of ~1 million in NYC and ~0.7 million in Mass. Meanwhile, State spending in CT has more than doubled.

    https://www1.ctdol.state.ct.us/lmi/ctnonfarmemployment.asp

    1. But then from 1997 to 2007 CT had among the best growth rates in real output of any state, growing 3% annually, compounded, in real terms. Jobs and growth are simply closely related–and in CT they seem to have a peculiar relationship–i.e. jobs grow but the economy doesn’t; jobs don’t grow but the economy does. Odd–but no one in Hartford seems interested in understanding that dynamic.

  5. This discussion is, unfortunately, fundamentally misleading. Between 2008 and the end of 2017, CT’s economy in real terms (adjusted for inflation) shrank every year but 2015–to about where it was in 2004. This despite the job creation. BUT in 2018 the first three quarters saw strong real growth–the first time since 2008 CT enjoyed three consecutive quarters of good growth. Equally encouraging, income tax withholding–which reflects earnings of in-state employment–was up nearly $172 million during the first six months of this fiscal year compared to last fiscal year. That argues that the jobs now being created as well as those we already have are paying better. Some of this increase is likely the result of increased withholding in response to the limitations on SALT deductions on federal returns. The bottom line is need to wait for the fourth quarter state GDP report to see where CT’s economy is.

  6. I run a multi-million dollar retail family owned business that has been in CT for almost 30 years. At one time I had 16 employees under me – now we are down to 8. Several of these are employees with Masters Degrees and the rest possess valuable skill sets. Everyone makes more than $15 or more at our shop. We contribute to local charities and are a pillar in our community.

    However, as a friend of our business in South Windsor recently learned (his business got hit with a $15k property tax hike and the town tax collector told him to ‘just run your company better’) the cost of doing business in this state just is not worth it.

    People simply don’t realize what happens is that EVERYONE pays those new taxes/tolls/fees in the price of goods/services they consume. Don’t care about taxes going up in South Windsor because you don’t live there? Well you will when you pay 15% for for the product you just bought. Larger businesses can adapt, but smaller ones are being tossed to the curb.

    It is sad but we are looking at liquidation options and likely to dissolve by the end of the summer. In the end we are another business run out of the state by our ‘leaders’ who care more about providing to those that take take take and nothing to those who actually produce.

    1. My business has followed the same path and is precariously in the same position. An increase in property taxes of $1,000 a month is inevitable and will put me under. Connecticut is a socialist state with a socialist government. They tell businesses what they can and can’t say to employees, they tell us what our employees will be paid and now expect us to run businesses with employees taking 12 weeks a year off. They have no invested capital at risk in a business yet tell us how to operate. The state government will get what they deserve. A fiscal nightmare.

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