Has State Recovery Lost Its Way?
Connecticut and the U.S. may appear to be in a recovery that’s lost its way, especially given recent disappointing jobs numbers. But the message from economists at a Rocky Hill conference seemed to echo President Obama – hang on and it’s going to get better. WNPR’s Harriet Jones reports.
The Connecticut Business and Industry Association held its annual economic forecasting conference today, taking advice from economist Ryan Sweet of Moody’s Analytics. He says the ebbing momentum in the economic recovery is actually an inflection point.
“The composition of growth is shifting. During the recovery business investment has been very, very strong. Manufacturing has done extremely well. That’s starting to fade.”
Job numbers just out from the Bureau of Labor Statistics show the fade in action – the U.S. added just 96,000 new jobs in August. Sweet says falling employment in the government sector is a significant drag on a more robust recovery in the private sector.
“If you take out the government from GDP, we’re averaging 3%. So if we were growing 3%, I think most economists would say we’re doing pretty well.”
Moody’s is predicting a significant uptick in growth next year. Sweet says consumer spending will remain dependable, although perhaps it will be challenged if inflation picks up. But what’s going to make the real difference in the recovery next year?
“The government’s going to be a drag, trade won’t provide much support, and manufacturing and business investment are slowing. So we need to turn to – housing.”
Housing – really?
“Everyone thought housing was dead. And it was for a while, but housing is showing signs of life – it’s coming back.”
But buying and selling houses depends in no small part on a rosier employment picture, and that depends on confidence among the state’s employers. The CBIA’s Peter Gioia took a quick straw poll of the audience.
“How many of you out there think the economy’s going great for you or for your company. Put your hands up. Ok, how many think it’s going good? So, you know, got a couple of hands but not a lot. So you know, obviously we’ve still got some challenges out there.”
So Gioia’s question to a panel of economists – how can Connecticut be more successful at translating economic growth into new jobs? Nick Perna of Webster Bank says industry clusters and bioscience initiatives are all very well, but the state has to get back to basics.
“Instead of focusing so much on picking winners and losers, the job of the state, the job of the legislature, the job of the governor, is to create a winning environment, where businesses that exist can thrive, where smaller ones that escape the ribbon-cutting radar can start up.”
In Perna’s book the prescription is a predictable tax policy, aggressively paying down long-term obligations and a closer look at the efficiencies to be had from regionalization. Professor Susan Coleman of the University of Hartford’s Barney School of Business agrees, but she does give the governor and the legislature high marks for their recent efforts to promote and help small businesses.
“Historically in Connecticut we’ve had kind of a big company mentality. And that’s evolving gradually. I think right now we’ve got really a wonderful balance of large companies and smaller, newer types of firms, which is exactly where we want to be.”
Of course, the persistent high unemployment during the recession and slow recovery hasn’t affected everyone equally. Alyssa de Jonge of the Connecticut Economic Resource Center pointed to some stark figures on employment and education.
“People with a four year degree, on average, the unemployment rate is about 4.5%. For those people with a high school degree, the unemployment rate is about 24%. So just when things are very uncertain, investing in education is always a good return on investment.”
But policy prescriptions only work to the extent you think that state government has a meaningful influence on the direction of the economy. Professor Steven Lanza, who edits UConn’s quarterly, the Connecticut Economy, says it’s not all up to the governor and the legislature, even if they have the right recipe.
“Connecticut is part of just a multiplicity of economic activity, embedded in the regional economy, embedded in the U.S. economy, even a global economy.”
In fact he says, if you analyze all of that economic activity and where it comes from, it appears that Connecticut really only directly influences about 15% of its own economy. The rest is hostage to policies and influences that originate outside the state.
For WNPR, I’m Harriet Jones.