Office of the State Comptroller - Nancy Wyman
2001 Comptroller's Report on Connecticut's Economic Health
Connecticut, like the nation, has been moving through a period of extraordinary economic growth. The state owes its prosperity to the creativity, skill and industry of its citizens. Connecticut ranks among the top five states nationally in the following: patent approvals; the percent of adults holding college degrees; and labor force participation rates. The state also ranks high in more traditional income, investment and employment statistics.
The fundamentals of the Connecticut economy are strong. For more than a decade the state has ranked first in the nation in per capita income and employment has been growing steadily since 1993. Defense and insurance continue to be important industries, but bio-science, software development, communications, pharmaceuticals, medical technology and tourism have contributed to a diversification in Connecticut's industrial base and have fueled economic growth. According to a report by the Progressive Policy Institute, Connecticut is uniquely positioned to meet the demands of the "new economy"-an economy based on technology, highly educated workers and global markets.
The state benefits economically from its geography. Connecticut is centrally located with access to the large eastern markets of the United States. Over 30 percent of the nation's effective buying income, retail sales, manufacturing firms and population are within a day's drive. Connecticut has also expanded its role in foreign markets. The state's foreign exports have risen steadily (increasing at an 8 percent annual rate through the 3 rd quarter of 2000), outpacing the national growth rate. State businesses trade with more than 170 countries around the world accounting for over $8 billion in exports. About a quarter of all state exports go to Canada.
While the state's economic performance from 1996 forward has been dynamic, it has not yet delivered financial prosperity to all state residents. For example, about 40,000 more Connecticut children live in poverty today than did a decade ago. Close to 100,000 Connecticut children, or more than one in ten, are living in poverty. The state's overall poverty rate jumped dramatically in the 1990s, moving from a 1987-89 average rate of 4.5 percent to a 1997-99 rate of 8.4 percent. While still a low rate by national standards, the trend is disturbing. Despite a statewide unemployment rate of just 2 percent, several urban areas are experiencing unemployment at three times that level. And, while most workers gained ground during the 1990s, low-wage workers actually saw a decline of more than 5 percent in their real wages. These are concerns that must be addressed if Connecticut is to achieve its full economic growth potential.
The data below illustrate that since 1996, Connecticut's economic recovery has been robust and sustained. The state was slow to recover from the 1989-92 recession. Between 1993 and 1995 while the country was gaining economic strength, Connecticut continued to see declines in real family income, increasing poverty, and only marginal gains in employment. The state lost close to 160,000 jobs during the recession, and was one of the last states in the union to regain its pre-recession employment level. By 1996, the period of stagnant growth had ended and Connecticut was fully participating in the national expansion. Since that time, the state's economic performance has rivaled or surpassed that of the national economy. However, in mid-2000 signs of slower national and state growth began taking hold. While few projections anticipate an actual 2001 recession (two consecutive quarters of negative growth), forecasts increasingly point to a growth recession (consecutive quarters of below average growth). State government, therefore, must adjust to the revenue implications of an economic slow down, and build appropriate reserves to guard against the need for future tax increases.
Connecticut experienced its strongest post-recession job gains in 1996 with the addition of 36,100 new jobs, a one-year growth rate of 2.3 percent. Since that time annual state job additions have been solid but slower. From 1997 through 1999 yearly employment gains averaged 26,000, a 1.6 percent average annual increase. The year 2000 has seen further moderation in job growth. Through October of 2000, a year-over-year gain of 23,700 jobs had been realized, a growth rate of 1.4 percent.
Over the last twelve months, the state's employment situation has fluctuated, but generally trended down. In the 3 rd quarter of 1999, the state added 6,400 jobs to payroll; in the 3 rd quarter of 2000 this figure dropped to 2,200 jobs.
The state's low unemployment rate - 2.0 percent in October of 2000 - is contributing to the present restrained growth in payroll employment. Connecticut's labor force is not increasing at a rate sufficient to generate the job growth of the recent past. In October of 2000, the state labor force had actually declined slightly from its 1995 level. While the country has seen its labor force expand by 8.4million workers since 1995, the state's labor force has declined by 5,900 workers during this period.
The state's unemployment rate has been in rapid decline since 1996, and has been consistently below that of the United States. Despite the low statewide unemployment rate, four Connecticut municipalities (Bridgeport, Hartford, Killingly, and Voluntown) were categorized as Labor Surplus Areas. Labor Surplus Areas have unemployment rates at least 20 percent above the average unemployment rate for all states during the pervious two calendar years.
The distribution of employment in Connecticut has been changing. In 1990, 21 percent of state residents were employed in manufacturing and 26 percent in services; today, the manufacturing share of employment has dropped to 16 percent, and service jobs comprise 32 percent of total employment. The service industry includes the following subcategories: engineering and management services; technology and advanced business services; health care services; and educational services.
The ten fastest growing occupations in Connecticut are as follows: computer engineer; systems analyst; computer support specialist; financial sales; physical therapy assistant; biological scientist; recreational attendant; human services worker; home care aide; and medical assistant.
Connecticut continues to lead the nation in per capita income with a 1999 figure of $39,300, compared to $28,542 nationally. This places Connecticut at 138 percent of the national average. Connecticut's comparative income advantage over the United States has been growing.
Connecticut's personal income growth peaked in 1997 with a one-year gain of 6.4 percent. Since 1997, annual personal income growth has remained above 5 percent.
Personal income includes earnings; dividends, interest and rent; and transfer payments (including Social Security) received by state residents. Personal income does not include capital gains distributions. In 1999, personal income components for the state were as follows: earnings 70.5 percent (as compared to 69.8 percent in 1989); dividends, interest and rent were 18.3 percent (compared with 21.3 percent in 1989); and transfer payments were 11.2 percent (compared with 8.9 percent in 1989).
From 1989 to 1999 earnings increased on average 4.4 percent each year; dividends, interest and rent increased on average 2.7 percent; and transfer payments increased on average 6.7 percent.
While personal income growth in Connecticut has been close to or above the national average for the past twelve quarters, the state experienced a precipitous slowing in the 2 nd quarter of 2000. In fact, Connecticut was in the bottom ten states for growth in that quarter. Nationally, 2 nd quarter growth was 1.7 percent; in Connecticut growth was just 0.5 percent.
Personal income is a good indicator of the total increase in state wealth, but it tells little about how the wealth is distributed. In assessing income growth for the average Connecticut family, real (inflation adjusted) median household income is a better measure.
Connecticut ranks fourth in the nation in real median household income. In 1999, Connecticut's real median household income of $50,798 was 125 percent of the United States' average of $40,816.While rising in recent years, the state's real median income is still below its pre-recession level of $56,860 in 1989.
OTHER ECONOMIC AND SOCIAL INDICATORS
Connecticut's housing market has been suffering the effects of higher mortgage interest rates. New privately owned housing authorizations declined 10.3 percent in 1999, after experiencing a 27.4 percent increase in 1998. Through October of 2000, year-to-date housing permits are 14 percent below last year's level. Existing home sales in Connecticut for the 3 rd quarter of 2000 were down 2.2 percent from the year-to-date total for the 3 rd quarter of l999.
Despite declines in the 1990s, Connecticut still ranks 13 th in federal defense spending. The state received $1,110 per capita compared to $869 nationally. Between 1984 and 1999 the percent of household assets invested in financial markets has surged nationally from 27.4 percent to 67.7 percent. The state has seen dramatic increases in capital gains reporting. Over the latest three-year period Connecticut capital gains have more than doubled. Projections show state capital gains in excess of $10 billion. The exceptional stock market performance since 1995 has increased state wealth and government revenues. As the often-volatile stock market slows, the economy and state revenues will be adversely impacted.
The state is ranked in the top ten nationally in the following areas according to the 1999 Statistical Abstract of the United States published by the Census Bureau: resident population living in a metropolitan area (96.6 percent); resident population age 65 and older (14.3 percent); Doctors per 100,000 population (344); retail sales per household ($28,193); teachers' salaries ($50,730); average annual pay for all workers ($38,895); and federal and state prisoners per 100,000 population (567).