Connecticut's economy struggled in the second quarter of 2022 -- here's why
Heading into the summer months, the Connecticut economy lagged that of the rest of the Northeast and nation, according to new federal estimates, raising more questions about how to accelerate growth amid the ongoing ripple effect of the COVID-19 pandemic.
Connecticut's gross domestic product fell by 4.7 percent between April and June, as estimated on an annual basis Friday morning by the U.S. Bureau of Economic Analysis. That had Connecticut second to last in the nation, ahead of only Wyoming, with the bureau blaming the state's finance sector and ebbing manufacturing output for the decline.
Personal income grew by a scant 2.2 percent in the second quarter, the smallest gain in the nation and well off the U.S. average of 5.8 percent growth. With the S&P 500 and other major stock indices down significantly this year, that has likely impacted Connecticut's cluster of hedge funds and wealth managers, as well as income for Main Street investors through mutual funds and other holdings.
Gov. Ned Lamont and Republican challenger Bob Stefanowski are presenting two different views of the Connecticut economy, with Lamont pointing to a succession of healthy budget surpluses and more open jobs than employers can fill with people looking for work. In response to a CTInsider request for comment on the GDP report, a spokesperson in the governor's office emailed a statement noting the impact of the pandemic, Russia's invasion of Ukraine and other macro-economic factors.
"This report is a snapshot of only three months in time and is not an accurate reflection of the totality of the state's economy or where the state's economy is headed," stated Lamont spokesperson Anthony Anthony via email. "The state's current positive budgetary health is a direct result of efforts by the governor and our legislative partners to get our fiscal house in order, which is evident by credit ratings upgrades by all major rating agencies, as well as making historic payments to reduce our unfunded liabilities, payments that will save taxpayers more than $12 billion over the next 25 years."
New York and Rhode Island were the only Northeast states to see their economies expand in the second quarter, if BEA estimates are accurate, including the impact of inflation. New York generated one of the nation's larger gains in personal income during the second quarter, at 7.2 percent.
In statements on the campaign trail, Stefanowski maintains that Lamont has yet to find answers to problems that he says could restore Connecticut to its loftier economic perch prior to the Great Recession, when its mix of finance, manufacturing and health industries produced that record employment. Stefanowski says the fact that employers are grasping at straws to fill openings in Connecticut shows how difficult blue-collar workers find it to live and work in Connecticut with its mix of high taxes and other costs of living like mortgages and rent, child care and other needs.
"I honestly believe that if I had 10 minutes with everyone in this state and Ned Lamont had 10 minutes with everyone in this state, I'd win by 10 points," Stefanowski said in mid-September during a gubernatorial forum at the Westport Public Library. "Our economy is horrible — only state to not have recovered the jobs since the Great Recession. Second highest taxes in the entire country, highest utility costs in the entire nation — I could go on for hours with the statistics."
But a week later as part of the same forum series, Lamont reiterated what has emerged as a campaign theme — he inherited "a mess" of a budget and economy in his words from his predecessor Dannel P. Malloy, that his administration has steered to a better place in cutting Connecticut's debt load and replenishing its "rainy day" fund to help fill the gap in any future disruptions to tax revenue. Lamont noted the COVID-19 pandemic's impact in casting Connecticut in a new light for people who could work remotely.
"We had tens of thousands of new families start moving into the state of Connecticut as opposed to the other direction," Lamont said. "Obviously a lot of [them] are in Fairfield County, ... all down the Naugatuck valley where people hadn't move in quite some time — really all over the state. And I think it was sort of a little bit of energy that manufactured where we're going to be as a future in this state."
That has helped boosting another key economic metric — the number of residents who hold jobs based either in Connecticut, New York or other states. Over the first eight months of this year, Connecticut saw its biggest increase on record in the number of employed residents, adding nearly 60,000 over that stretch.
But the state remains 57,000 people short of the mark it hit in August 2019, in advance of the holiday season that year which had nearly 1.9 million people holding jobs in Connecticut, New York or other states.
To gauge how the Connecticut economy is faring depends very much on where one draws the line. In 2008, Connecticut completed a 12-month stretch with more than 1.7 million jobs, prior to the collapse of the mortgage securities markets that year that triggered the Great Recession. It took Connecticut employers until 2011 to piece together a similar run of year-over-year job gains.
A stretch of slow growth culminated in a return to the 1.7 million job threshold in January of 2020, prior to mass layoffs that March at the outset of the COVID-10 pandemic. In August at the doorstep to the fall elections of 2022, however, Connecticut remained about 36,000 jobs short of that magic 1.7 million mark.
Still, Connecticut continues to see near-record lows for people getting unemployment benefits while actively searching for work, at roughly 17,000 claimants as of last week.
"We still have 113,000 job openings," said Chris DiPentima, CEO of the Connecticut Business & Industry Association. "That really prevents us from exploding on our GDP — obviously if you don't have people in the businesses working, then the businesses aren't recognizing the total output that they could because they are not meeting all of their demand."
Connecticut joined Indiana, Oregon and Washington with sizable declines in manufacturing output last spring, despite steady work at Pratt & Whitney in East Hartford and Middletown and Sikorsky in Stratford; surging work at the Electric Boat submarine plant in Groton and New London; and spillover contracts for hundreds of smaller suppliers to those companies in Connecticut.
The CEO of Raytheon Technologies told investors in July that he sees subsidiary Pratt & Whitney getting caught up by next spring, blaming both the surge in COVID-19 infections at the start of this year as well as continuing disruptions to supplies for key materials like titanium.
"We really expected as COVID receded into the background that we would see a quick recovery in the supply chain — and in fact, that was wrong," said Raytheon CEO Greg Hayes, speaking in July. "Inflation is a challenge but we can measure it, we can work to overcome it. Not having enough people in the supply chain — that has proven to be much more difficult."
Includes prior reporting by Amy Coval, Ken Dixon and Alex Putterman.