Pandemic Dampens State’s Job, Economic Growth Forecasts


The coronavirus pandemic is significantly dampening projections for Connecticut’s job and economic growth.

The May 2020 issue of the Connecticut Economic Digest, produced by the state Department of Labor and Department of Economic and Community Development, includes a number of preliminary forecasts.

Connecticut Employment Projections
A March IHS Global Insight report projects Connecticut employment will not reach pre-pandemic levels until 2023.

The digest reports that the economic research organization IHS Global Insight revised its Connecticut employment outlook in March, reducing its forecast for 2020 by 74,000 jobs.

IHS, which released an earlier forecast in January, now predicts that Connecticut employment will not reach pre-pandemic levels until 2023.

The organization predicts employment declines in the retail trade, manufacturing, and accommodation and food service sectors, with an improved outlook for healthcare, government, and transportation and warehousing.

The state labor department’s research division says its February projection for modest 0.4% job growth through the second quarter of fiscal 2021 now represents “a best case scenario.”

Record Unemployment

More than 472,000 unemployment claims were filed in Connecticut since mid-March, with the unemployment rate estimated at over 20%.

For context, the state lost 120,000 jobs during the 2008-2010 recession.

The U.S. economy lost 20.5 million jobs in April after losing 870,000 positions the previous month. The national unemployment rate—at a near-historic low of 3.5% in February—is now 14.7%.

“The COVID-19 health crisis and the related shutdown of nonessential businesses caused a drastic shift in the employment outlook,” labor department economist Matthew Krzyzek wrote in the latest digest.

“Many leading analysts have declared that there is a 100% chance that the U.S. economy has entered a recession.”

Connecticut “will clearly suffer a recession along with the nation,” he adds.

“What we don’t know—what no one knows—is how long it will last.”

Best Case Scenario

Under the best case scenario, Krzyzek writes “the recession will be short and the national and Connecticut economies will bounce back early next year so that by next summer we’ll be back on track.”

A report from management consulting firm McKinsey & Co. predicts that if Connecticut effectively contains the virus, the state’s economy will shrink by less than 10% for the current quarter.

Under a more muted recovery scenario, McKinsey predicts state GDP will remain below 90% of fourth quarter 2019 levels through the end of 2020.

McKinsey says if Connecticut effectively contains the virus, the economy will shrink by less than 10% for the current quarter.

McKinsey expects the leisure and hospitality, retail trade, other services, and transportation and utilities sectors to bear the brunt of the economic downturn.

Agriculture, professional Services, finance, and public administration are expected to weather the recession the best.

“These numbers are unprecedented and no one knows for certain how these events will impact the economic outlook,” Krzyzek writes.

Temporary Layoffs

But Krzyzek strikes an optimistic tone, noting that “a key distinction of the recent slowdown is that a large percentage of unemployment is due to temporary layoffs, whereas during the 2008-2010 recession, far fewer workers were unemployed temporarily.”

The pandemic’s “effects on the economy will be severe, but the question is for how long.”

A prolonged national recession “will severely harm Connecticut,” Krzyzek writes.

“On the other hand, a quick rebound could get Connecticut back on track by the middle of next year.”

A key factor is how fast federal small business loans, grants, and stimulus payments to individuals inject liquidity into the economy, the digest concludes.

“These quick [government] responses make our projections of a return to modest growth in Connecticut by 2021 a possible best case scenario,” Krzyzek notes.


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