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CT Economic Growth Picks Up Speed, But Still Lags Behind Much Of The Country

CT Economic Growth Picks Up Speed, But Still Lags Behind Much Of The Country

Hartford Courant, November 14, 2018

By Stephen Singer

Economic growth picked up speed in Connecticut in the spring, the U.S. Department of Commerce reported Wednesday, offering a glimmer of hope that will require more evidence over time that the state has emerged from a decade-long downturn.

Federal officials said the state’s economy grew 3.1 percent in the second quarter, up sharply from a rise of 1.1 percent in the first quarter.

But Connecticut’s economic growth was the second slowest in New England, after Rhode Island, and ranked No. 43 nationwide in the April-to-June period.
The commerce department also revised 2017 data that show the state’s economy — the sale and production of all goods and services — shrank even more than initially believed: It contracted 1.1 percent for the year, not the 0.2 percent drop economists originally reported.

The state’s $272.7 billion economy was the second largest in New England, behind Massachusetts’ $569.3 billion economy. Still, the Bay State’s economy grew faster, up 4 percent in the three-month period.

Durable goods manufacturing and information industries, which includes publishing, motion picture and sound recording, broadcasting, data processing and other information services, contributed the most to economic growth in the second quarter.

Finance and insurance, which have a big presence in Connecticut, shrank during the three-month period.

The speed of economic growth determines many other factors: the amount of money consumers have to spend, job creation and how much tax revenue government has to finance social programs, public education, infrastructure and other needs.  

Economic growth is political issue back to top

In Connecticut, slow economic growth has been a sharp political issue. It’s been blamed for an exodus of residents and forced elected officials to make unpopular decisions such as raising taxes, cutting spending or both.

Fred Carstensen, a UConn economist, said the two consecutive quarters of economic growth are a good sign.

“What we hope is that it’s going to be sustained,” he said.

However, Connecticut’s economy moved in fits and starts out of the Great Recession in what can be called a lost decade from 2008 to 2018. “We’ve been through a brutal 10 years,” Carstensen said.

The state’s economy is now slightly smaller than in 2005, he said, warning that two consecutive quarters of a growing economy may not last.

“Often we’ve had one or two quarters of growth and another that sends us south again,” Carstensen said.

Economist Donald Klepper-Smith said the growth rate is overstated. It’s annualized and assumes “four straight quarters of that growth rate,” he said.

The real rate of growth in the second quarter was a fraction of 1 percent.

Connecticut’s economy has gotten smaller as the U.S. economy grew following the recession that ended in June 2009. Klepper-Smith, an economic adviser to Gov. M. Jodi Rell, a Republican, said the disparity is the result of declining business confidence in Connecticut, more residents leaving than moving in, a lack of fiscal discipline by state and local officials and “misguided economic development policies.”

Carstensen said the state’s economy is being lifted by defense spending and the construction of submarines, helicopters and fighter jet engines. In addition, soaring aviation demand is a boon to United Technologies Corp. subsidiary Pratt & Whitney, which is building thousands of next-generation jet engines.

He rejected the suggestion that tax increases have hobbled economic growth. Economic growth in Connecticut was strong from 1997 to 2007, “in the presence of the income tax,” he said.

Instead, Carstensen said Connecticut officials failed to recognize the importance of information technology — a network of fiber optic cables and advanced telecommunications — to promote business growth and economic development.

“We did not give serious attention to building the infrastrucuture for the information age,” he said.

If economic growth continues to strengthen, it would be good news for Gov.-elect Ned Lamont and the General Assembly, which must hammer out a budget next year in the face of multibillion-dollar projected deficits.

State tax revenue projections are up, shrinking the projected shortfall in the two-year budget to be drafted.

Carstensen called it a “one-off” development and said Lamont and legislative leaders must focus on economic growth more than on redistributing money by debating how much to raise the minimum wage.

“That’s why economic growth and restoring Connecticut’s competitiveness probably ought to be No. 1 in the legislature,” he said. “We need to grow the pie.”