Economist: Connecticut on the edge of a 'growth recession'

(Sept. 8, 2008) Connecticut is outperforming most of the country but still has to “navigate against some pretty strong head winds from the U.S. economy,” says a leading national economist.

Speaking at CBIA’s “Connecticut Economy” conference last week in Rocky Hill, Andres Carbacho-Burgos of Moody’s Economy.com, said that Connecticut is on the edge of a “growth recession.”

A growth recession is an economy that is growing — but at such a slow pace that more jobs are being lost than added. The lack of job creation makes it “feel” as if the economy is in a recession, even though the economy is still advancing.

In fact, said Carbacho-Burgos, Connecticut is adding jobs but at a very modest rate. Other than the state’s health care industry, which has had solid and consistent job growth, job creation in Connecticut’s major industry sectors has stalled.

Meanwhile, household incomes in the state are falling, consumer spending is slowing dramatically, and consumers’ credit capacity is “nearly exhausted,” he said.

He added that while the housing crash is not over in Connecticut, the state has not been as deeply affected by the subprime mortgage crisis, with a significantly lower delinquency rate on first mortgages than the national average. And the local credit market is substantially better here than ing the rest of the U.S.

However, housing starts in the state will continue to decline this year, and single-family home prices will also keep decreasing well into 2009. Housing starts are expected to increase in early 2009, and home prices will rise only at the end of that year.

Carbacho-Burgos was wary about the state’s employment picture, saying that Connecticut’s financial services industry has been greatly affected by the downturn. Banking employment has fallen more steeply in our state than in the rest of the Northeast region and across the nation.

He said the state could shed as many as 20,000 jobs over the next two economic quarters — which would be a “very mild” decrease when compared with the “great recession” of 1989-1992. Ultimately, the state’s employment will pick up, but at a slower rate than the rest of the nation. Hartford is the leading region in the state for job growth, with the other regions significantly behind.

Still, Connecticut’s economy has much in its favor, said Carbacho-Burgos, including stellar productivity from its manufacturing sector. Barring any major events, the state will continue to endure the effects of the national downturn but should emerge by the middle of 2009 with stronger economic measures.