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Why Connecticut's Jobs Machine Is Sputtering

By Dan Haar

December 07, 2012

As the year draws to a close, Connecticut, more than most states, remains hostage to the fiscal cliff talks in Washington D.C. But even without that bit of Yuletide feuding, the jobs picture here is grimmer than just about anyplace as the nation as a whole marches ahead.

What's going on?

Outside the obvious fact that employers are treading water overall, the answer isn't entirely clear.

Connecticut lost 117,500 jobs from early 2008 to early 2010, but as of October it had replaced barely more than a quarter — half the recovery rate of the nation. The state unemployment rate has spiked to 9 percent, and although experts suspect that number is off somehow, it's certainly not going in the right direction.

Forecasters see another flat year in 2013, all the more perplexing since Connecticut started the recovery in 2010 and into 2011 outperforming our neighbors, and the nation. Happier days are predicted for 2014, largely because the nation is expected to be booming then.

Part of the issue is simply the specific mix of industries and companies in Connecticut: Defense firms had ramped up but now face headwinds from one round of Pentagon cutbacks and fears of still more. The big investment banks in New York and Stamford have slashed employees, hurting Fairfield County.

The casinos have stopped their deepest losses but are still shedding workers, and state and local government, usually pillars of stability, are letting jobs lost to retirement remain unfilled. Health insurers are retrenching ahead of Obamacare, and the largest Hartford-area property-casualty employer, The Hartford Financial Services Group, is in the midst of a selloff of businesses.

Housing, which of course dragged the nation into recession after collapsing in 2007, is coming back more slowly here than elsewhere in part because of lack of population growth. Big metro areas are hot and we don't have one of those, though we're trying to make our cities into destinations. .

Even in health care, "hospital mergers are slowing what was the strongest sector for growth," said Ed Deak, emeritus economics professor at Fairfield University.

Another issue could be that employers here are more spooked than employers in other states by the prospect of a fiscal cliff, or the likely fiscal slope, if the federal government in 2013 raises taxes on high-income earners — which Connecticut has in abundance — and cuts military spending, which affects us more than any other New England state.

"Does that warm the cockles of your expansion heart? No," said economist Nick Perna in Ridgefield.

Connecticut would be the third-hardest hit state in the fiscal cliff, not far behind No. 1 Michigan, according to Moody's Analytics. So even though the cliff effect hasn't happened yet and almost definitely won't happen in its worst form, it made sense that companies here would hold off on hiring and spending more than elsewhere in 2012.

Another issue is the cost of doing business, including taxes and energy. That explains why the Northeast lags the nation, not why Connecticut lags the Northeast. Some people, including Don Klepper-Smith of DataCore Partners in New Haven, say this state's high pension and debt liabilities affect confidence, making us worse off than even our neighbors.

Not a Career Year

In October, the latest month of released data, Connecticut actually had 0.2 percent fewer jobs than it did a year earlier, an alarming development three years after the end of a recession. Massachusetts, by contrast, was up by 1.3 percent, which would translate to 21,000 jobs in Connecticut. New York was up 1.5 percent, California up 2.1 percent and the nation, through November, was up 1.4 percent.

To put it in perspective, each percentage point in Connecticut is about 16,000 jobs, so a single company event can't typically move the needle by much. In the nation, a percentage point is 1.3 million jobs, slightly less than the total number of U.S. employees of Walmart.

Connecticut's unemployment rate stood at 9 percent in October, after a leap in the summer. The Northeast was at 8.4 percent and Massachusetts, 6.6 percent, also after a rise late in the year.

The U.S. jobless rate, meanwhile, pulled down to 7.7 percent in November, Friday's report showed. Some of the improvement in the national picture is for the "wrong" reasons as people stopped looking for work or took part-time jobs, but the numbers also show a reduction in the number of unemployed people — which we're not seeing in Connecticut.

The numbers matter because they affect confidence, which affects spending by consumers and companies, which affects jobs. But the data is quirky. Connecticut's jobless rate, for example, shot up to 9 percent in August from 8.1 percent in June, a bizarre leap that experts still can't explain. Although the rate is important to people's lives, economists pay less attention to it at the state level than they do the job creation numbers, simply because monthly state unemployment data — based on a sample of 1,600 households — is far less accurate.

Job creation numbers, based on a larger sample of employers, are subject to annual revisions, and the state Department of Labor has already warned that the March 2013 update could add 10,000 to Connecticut's total as of March 2012. That may brighten the picture but it would not change the slow pace of growth.

"We are coming back inch-by-inch as opposed to yard-by-yard," Klepper-Smith said.

A Long Wait

Looking ahead to 2013, we are expected to lag even perennially ailing Rhode Island, with a gain of just 5,600 jobs, or 0.3 percent, according to a forecast by Deak released Wednesday by the New England Economic Partnership.

"Why are we doing so much more poorly than, say, Massachusetts? Here you've got two states founded at the same time with the same kind of cultural background," Perna said. "One of them is outperforming the economy and the other is underperforming."

Massachusetts, with a huge university economy and federal research money, was shielded to some extent from the recession, Perna said, and that could still be having an effect.

As for Connecticut, in addition to federal taxes and spending cuts, the state's own fiscal crisis will demand higher taxes, cuts in state spending or both; and our housing recovery is also lagging.

Connecticut's high state debt and large, unfunded pension liability and high debt is hurting business confidence, Klepper-Smith said. That's a matter of dispute, as the state is No. 23 in per-capita debt when state and local governments are both included, the governor's budget chief said. As for pension liability, ironically it is more of a factor now that Gov. Dannel P. Malloy is dealing with it directly rather than letting it fester, because it's costing real money to fix.

Deak pointed out yet other problems for 2013, including the graying of the workforce and hits to the stock market caused by fiscal tightening. Add to that the fears that more aerospace jobs might move to the South — as we saw when United Technologies Corp. acquired Goodrich and moved merged Hamilton Sundstrand into a new business headquartered in Charlotte — and it's a wonder the numbers are looking positive at all for next year.

A more stable Europe and the post-Sandy recovery are pluses for 2013. "Already money is flowing into the region, federal and insurance, and so that's going to help the state,' Deak said.

There are reasons for Connecticut to be hopeful in 2014. That's reflected in Deak's New England Economic Partnership forecast, showing a gain of 1.4 percent, or 22,500 jobs in the year that starts in less than 13 months — the same percentage as our neighbor to the north, finally. The U.S. forecast for that year is a hefty 2.2 percent rise, according to Moody's Analytics.

Even in that good year, Connecticut's fundamental problems temper the optimism. Moody's prepared a baseline, which showed Connecticut's expected job gains based on how the nation will fare. And Deak, using specific factors in Connecticut, pulled the projected gains back by 7,000 jobs in 2013 and 6,000 jobs in 2014.

By 2014 — a re-election year for Malloy if he chooses to run — we could see some investments paying off. At Pratt & Whitney, production of the next-generation engines for both the military and commercial markets ramps up. In Farmington, we'll see real gains from the expansion of biotech research. Downstate, Connecticut's TV and film industry could reach critical mass thanks to state tax credits.

For the 171,000 people who remain out of work, that's a long wait.