Warning lights are flashing for state, national economies

(June 17, 2008) Almost all the warning lights are flashing red, signaling at least a moderate national recession brought on by the housing crash, credit crunch and high oil prices. Lingering, too, is the threat of a deeper recession and stagnation if the economy can’t pull out of the downturn.

Affected by the same factors as the rest of the U.S., though not as sharply, Connecticut’s economy is seeing warning lights as well.

Those are some of the observations made by Dave Iaia, director of U.S. Regional Service for Global Insight, an economic forecasting firm, at a recent CBIA-sponsored business event in Hartford.

Among the many good and bad factors affecting the state and national economies:

Spending: Consumers and businesses have put the brakes on spending, said Iaia. The federal tax rebate checks will offer some relief, possibly producing a short-lived and shallow economic “recovery.”

Energy: High prices at the pump are sending shockwaves through households and the business community alike; Connecticut has the second-highest gasoline prices in the U.S., according to AAA.

Exports: The good news is that export growth, helped by the weak dollar, has been strong. That could especially help Connecticut, where exports increased 12% between 2006 and 2007, and total state exports were a robust $13.7 billion in 2007.

Capital: Also on the plus side, government efforts to manage the subprime mortgage crisis have increased liquidity and helped support the market.

Connecticut has experienced four consecutive months of job losses and is expected to trail employment growth in the U.S. through 2009. Manufacturing and construction jobs should suffer the worst as the slowdown particularly affects housing starts and capital projects. Jobs in education, health, finance, hospitality and other service-related industries could show modest growth into 2009.

The health of the financial sector is especially important to Connecticut and could be a key barometer of the recession, said Iaia. Finance-related jobs represent a significant share of the state’s employment and an even greater share of personal income in the state. Financial industry jobs are projected to grow slightly (1%) in Connecticut in the year ahead.

Overall, 2008 will be very slow for growth in the state’s gross state product, but this measure of economic strength should improve considerably in 2009.

“Obviously, 2008 will be a rough year for the economy,” says Pete Gioia, CBIA economist, “but there are enough positives amid the current gloom to expect better prospects in 2009.”

For more information, contact Gioia at 860-244-1945 or gioiap@cbia.com.