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Conflicting Economic Forecasts for 2011

They Disagree On What Will Happen To Connecticut's Employment Picture

November 18, 2010

On Thursday, two economic forecasts for what will happen in Connecticut in 2011 were announced, one bullish and one bleak.

Connecticut's unemployment in 2011 will remain right where it is now, on average, at 9.1 percent, as the state's recovery barely stirs, according to Fairfield University economist Ed Deak, speaking in Boston at the New England Economic Partnership.

University of Connecticut economists disagree, with what they call a bullish forecast for 2011 followed by modest growth in 2012. From October 2010 to October 2012, they believe, there will be 38,500 jobs added in Connecticut, and the pace will be twice as fast in 2011 as in 2012.

That forecast is by Peter Gunther, senior research fellow, and Fred Carstensen, director of the Connecticut Center of Economic Analysis.

Deak said the slow slog for Connecticut will be weaker than the recoveries of Massachusetts and New Hampshire. Connecticut will be "a year or more behind the recovery pace of our sister states in the area," he said.

Deak predicted that the state would add just 6,000 jobs in 2011, or about one-third of 1 percent. But he expects employment to grow by 22,700 in 2012.

Nicholas Perna, a Yale lecturer who has been recognized as one of the most accurate forecasters by the Wall Street Journal, says he would split the difference on the number of jobs in the next two years, but he agrees with Deak that job growth will be stronger in 2012 than 2011.

Perna had a column in The Courant just after the economy entered freefall, saying national unemployment could hit 8.5 percent in 2009, but he thought a 7.7 percent peak was more likely. Instead, the U.S. unemployment rate reached 10.1 percent, and stayed in the double digits for three months in 2009.

"I was in good company. I think the Obama people were saying pretty much the same thing," he said.

In fact, the administration's overly optimistic forecast for unemployment convinced many voters that the stimulus was ineffective. (Perna, and most economists, believe unemployment would have been even worse without it.)

"We were looking at this more like a garden variety recession," Perna said, "but it was accompanied by a financial collapse."

He said no one realized how much house prices were going to fall, or how badly the credit markets would freeze.

Economists are usually too optimistic as recessions are just starting, and too pessimistic when making predictions during the early, uneven stages of a recovery.

Perna said it's human nature.

"Going into a recession, you want to be sure you don't alarm all your forecast users," he said, which in his case, is Webster Bank. "Coming out you're a little bit chastened because you weren't pessimistic enough going in."

Deak acknowledges in his report that this forecast is more optimistic than the one six months ago, and the one a year ago. The national and Connecticut economies were growing a year ago, even as that growth hadn't been translated into hiring.

One of the things that worries Deak is that United Technologies Corp. executives said a good place to grow jobs is "anywhere but Connecticut." Deak said he sees that comment as proof of Connecticut's unattractiveness to business, and he says he believes the 1,000 Pratt & Whitney jobs saved by a court ruling are unlikely to stay.

UTC has about 25,000 employees in Connecticut, and is the largest private employer in the state.

The theme of the Boston conference was state and national fiscal crises, and Deak was gloomy about Connecticut's ability to close its revenue gap. More optimistic was Mark Zandi, chief economist of Moody's economy.com, who said states' fiscal problems will be largely solved by 2012 as income tax collection improves rapidly.

The Connecticut Center of Economic Analysis also addressed the strains on government, projecting more than 10,000 job cuts in state and local government over the next two years. And if Dannel Malloy, the incoming governor, was to be really aggressive in cutting spending, and made $2 billion in cuts, the forecast shifts to more than 23,000 job cuts. The CCEA believes that a ripple effect in the private sector would mean 15,000 fewer private sector jobs gained in the two-year period.