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Business Closings Reach Record

By Greg Bordonaro

July 20, 2009

Continuing almost a year-long downward trend, a record number of Connecticut businesses closed their doors during the first half of 2009, while the number of new business starts during that six-month stretch declined.

A total of 6,944 businesses filed paperwork to dissolve their company from Jan. 1 to June 30, a 17 percent increase from a year earlier and the most closings the state has seen during that time period since the Secretary of the State’s office began tracking the data in 2000.

Almost 3,500 companies shut their doors in the second quarter alone, including 89 in Hartford. Stamford was the hardest hit city in the quarter, losing 126 businesses. Norwalk, Greenwich and Danbury lost 79, 78, and 71 businesses respectively, according to a Hartford Business Journal computer analysis of business data.

Meanwhile, Connecticut saw 13,878 new business starts in the first half of 2009, a 9 percent decline from last year.

“Those numbers reflect an economy that has been in an incredible amount of turmoil," said Peter Gioia, an economist with the Connecticut Business & Industry Association. “A lot of businesses have had significant challenges so it’s not totally unexpected to see these ugly numbers.”

Gioia said the business closings are a partial reflection of the job losses the state has experienced over the last year. Despite adding about 3,600 non-farm jobs in May, Connecticut’s unemployment rate rose from 7.9 percent to about 8 percent, according to the state’s Department of Labor.

The labor department estimates that 150,300 state residents were without employment in May, up nearly 1,800 people since April.

The 8 percent unemployment rate is still below the national average of 9.4 percent, but it is 2.4 percentage points above Connecticut’s level in May 2008.

Gioia said when the unemployment rate is that high, people stop or reduce their spending, which means businesses lose their revenue stream. It also causes fear to creep in over the entire economy

Secretary of the State Susan Bysiewicz, whose office tracks business data, said the two biggest challenges facing small businesses in Connecticut are health care and utility costs.

Bysiewicz criticized Gov. M Jodi Rell for vetoing the health care pooling plan, which would have allowed small businesses to enter the state’s generous health insurance pool. Bysiewicz said that bill, which was highly touted by Democrats, would have cut the number of uninsured people in the state at least in half.

“I would have signed that bill into law,” said Bysiewicz, who is considering a run for governor in 2010. “Health care reform is critical to economic reform in Connecticut and half of the approximately 400,000 people uninsured in the state are from small businesses.”

Bysiewicz also said Connecticut has the highest utility costs in the country, and the state needs to fix that by investing in renewable energy and fuel cell technology.

Despite the bleak numbers, Gioia said he sees some optimism in the economy and he thinks “we almost certainly have hit bottom.”

But economist Fred Carstensen, who is director of tthe Connecticut Center for Economic Analysis, has deeper concerns.

He said Connecticut is facing two crises right now, a short-term one related to the global economic meltdown and a long-term one related to an overall decline in the competitiveness of the state economy.

“We are getting hit by a double whammy and these business closings should remind us of that,” he said. “Long term, Connecticut is not the place to be.”

Carstensen said Connecticut is one of a few states that has fewer businesses now than it had in 1989. At the same time, the state continues to shed high-wage, high-skill jobs, is experiencing a shrinking working-age population, and lacks any long-term economic-development strategy. He said the current budget crisis will only make things worse.

“Clearly, the state is going to cut expenditures, raise some taxes, and do a significant amount of borrowing,” Carstensen said.

Andy Markowski, Connecticut director of the National Federation of Independent Business, agrees that it’s not just the recession that is impacting companies in the state.

“I don’t think it is any secret that Connecticut is not a friendly place to do business. Some of this has to do with the national recession, but this started in Connecticut long before the economic downturn,” he said.