Is CT’s slowing job growth a sign of something worse?
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.
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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