While state officials remain hopeful that government coffers will continue to swell for another four years, a new federal forecast warns Connecticut’s economy is poised to slip over the next six months.
The latest monthly projections from the Federal Reserve Bank of Philadelphia identified nine states at risk of contraction by mid-2020, the most in more than a decade.
And while the 0.13 % decline in Connecticut’s economic index is the mildest of the nine falling states — far less than West Virginia’s 2.56% drop — it still casts a negative cloud over a state that lagged the nation in recovering from the last recession.
Other states at risk of contraction include: Montana, Oklahoma, Pennsylvania, Delaware, New Jersey, Vermont and Kentucky.
By comparison, the Philadelphia bank’s economic index for the nation is projected to grow 1.4% over the coming six months.
“I think it’s accurate. I personally expect the state to contract unless it gets its job numbers up.”
CBIA Economist Peter Gioia
The economic forecast is based on the coincident index, which is calculated largely on the unemployment rate and payroll. The state leading indexes are also based on manufacturing surveys, unemployment claims, housing permits and the interest rate spread between the 10-year Treasury Bond and the 3-month treasury bill.
It may or may not lead to a recession, which is a significant economic decline in national gross domestic product lasting for at least two consecutive quarters.
Even though Connecticut’s projected slip was the smallest of those on the list, an economist for the state’s leading business lobby was taking it seriously.
“I think it’s accurate,” said Peter Gioia, economist for the Connecticut Business and Industry Association. “I personally expect the state to contract unless it gets its job numbers up.”
Connecticut still has recovered only about 85% of the 120,000 jobs it lost during the last recession, which ended in mid-2009, according to some economists, or early-2010 according to others.
And early job losses in 2019 helped Connecticut to close the year, according to unofficial totals from the state Department of Labor, with job growth of just 0.2%. By comparison, job growth nationwide is estimated for 2019 at 1.5%.
Gioia noted Connecticut not only has been slow to recover jobs, but also to regain wages, often replacing high-paying positions with retail and other service jobs.
“We’re growing and replacing manufacturing jobs, which is good, but we’re much weaker at replacing financial services jobs, which pay well,” he said. “I think we have a very fragile economy.”
Gioia stopped short of forecasting Connecticut’s entry into a recession in the next six months, but said when the next major downturn happens, Connecticut could be one of the first states to enter it.
Gov. Ned Lamont’s budget office did not comment on the federal reserve bank’s projections, but the House chairman of the General Assembly’s tax-writing committee said state officials need to be wary.
“I’m taking a far more cautious approach to how we handle the next legislative session, and how we think of the state of the state,” said Rep. Jason Rojas, D-East Hartford, who co-chairs the Finance, Revenue and Bonding Committee.
Both the governor’s budget agency and the legislature’s nonpartisan Office of Fiscal Analysis issued a revenue forecast in mid-November that projected Connecticut can expect state income tax receipts to grow 13% over the next four years.
This would help Connecticut push its $2.5 billion emergency budget reserve over its statutory limit — equal to 15% of annual operating costs or about $3 billion — and allow officials to use hundreds of millions of additional surplus dollars to reduce the state’s massive pension debt.
But both legislative analysts and the governor’s budget office base their revenue forecasts on short-term economic trends.
In other words, neither agency can project when Connecticut is likely to enter a recession, and all revenue forecasts are conditional.
Rojas agreed with Gioia that Connecticut has strengthened its manufacturing sector. But the East Hartford lawmaker also said, “We took our legacy industries for granted for a long time,” adding that government must do more to support the insurance, financial services and health care industries.
CT Mirror Reporter Ana Radelat contributed to this story.