State’s economy waiting on fiscal cliff talks
The latest jobs forecast for Connecticut has economists staring into a murky crystal ball that suggests a paltry 7,500 new positions will be created in the state next year.
But these projections, released Wednesday in the winter edition of The Connecticut Economy quarterly, could be wildly optimistic if Congress can’t come up with a budget agreement to keep the government from going over the “fiscal cliff,” a term used to describe the economic difficulties that might ensue if Bush-era tax cuts are allowed to expire while automatic federal spending reductions are enforced.
If a deal is never reached, according to the University of Connecticut publication, the state could lose 20,000 jobs over the next two years. This would nearly negate all the job growth the state has seen since the 2007-09 Great Recession.
“We could see real potential for undoing a lot of the progress we’ve made,” said Steven P. Lanza, executive editor of The Connecticut Economy, in a phone interview.
Job-loss projections related to the fiscal cliff don’t even take into account further cuts in the defense budget that would inevitably follow and might hit Connecticut particularly hard, Lanza said. He added that a job loss of such magnitude likely would send the state and nation into yet another recession.
“With unemployment still up, wages flat, Europe’s debt crisis unresolved, global growth slowing and investors’ nerves raw, who can blame the pessimists?” Lanza said in the report.
Even if a budget compromise can be found, Lanza said, the most likely scenario calls for Connecticut to hit a lull in growth during the first half of 2013. The final quarter of next year could see growth in the range of 3,000 jobs statewide, according to Lanza, who pointed out that “four of the past five quarters have been the worst for job growth in the recovery to date.”
Adding to the economic burden in Connecticut, Lanza said, is an unemployment rate that reportedly increased almost a full percentage point between the second and third quarters of this year. The jobless-rate spike could be based on a survey error by the U.S. Census Bureau, he added, but if they can be believed, the numbers represent “the largest exodus of would-be workers from the (state) labor force — more than 12,000 — since 1976.”
Peter Gioia, an economist and vice president of the Connecticut Business & Industry Association, said he is a bit more optimistic about the state’s potential for job growth next year. He expects 12,000 or more jobs to be created in the state in 2013, believing the economy has some “latent firepower” such as large chunks of corporate cash and relatively low consumer debt not seen since the 1980s that could help companies add to hiring figures.
“People were up to their eyeballs in debt, but they are not up to their eyeballs in debt now,” Gioia said.
Gioia agreed, however, that solving the nation’s fiscal-cliff dilemma will go a long way toward determining how robust Connecticut’s economy turns out to be in 2013.
“The whole thing is being held hostage to the games in D.C.,” he said.
Lanza’s projections call for continued job losses in the Norwich-New London area in the final quarter of this year and into early 2013, but at a much slower rate of attrition than seen so far this year.
The region is expected to show just a small increase in jobs during the second and third quarters of next year, according to the report. And its unemployment rate is expected to stay above 9 percent well into next year.
Gioia said eastern Connecticut’s economic problems are largely related to its industry mix, pointing to financial difficulties at the Mohegan Sun and Foxwoods casinos as well as cutbacks at Pfizer Inc.
“What had been a plus in the early ’90s with the casinos is now a drag,” Gioia said.
Housing prices are another matter. While the report sees significant gains in single-family home prices over the next few months, big losses averaging more than 5 percent are foreseen in the second and third quarters of next year, based, according to Lanza, on stagnant job numbers. Housing-permit numbers also are projected to be down significantly over the next year in the Norwich-New London area, according to the report.
“The only breaks Connecticut’s economy seems to catch these days are bad ones,” Lanza said in the report.
Lanza did see some glimmer of light in the region’s hours and earnings report, which shows the Norwich-New London area with the biggest gains among major labor markets in the state last quarter. Increases in these areas often precede companies deciding to hire new employees, Lanza said.
“That does suggest that not all is ill with the Norwich-New London labor market,” he said.
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