State Government Report: Connecticut’s Economy at 2004 Level

Connecticut’s economy is at the same level it was in 2004, according to a new state government report highlighting the state’s sluggish job and economic growth.
The July issue of The Connecticut Economic Digest, published by the Department of Economic and Community Development and the Department of Labor, says the state’s economy has declined 3.3% since the recession ended in 2010.
“Connecticut is the only state to continue losing economic activity even since the end of the recession,” the report said.
“This lackluster economic growth has resulted in anemic revenue growth in the state, leading to years of budgetary constraints.”
Massachusetts’s real gross state product (that is, adjusted for inflation) has grown 14.3% since the recession ended, leading all New England states and matching overall U.S. growth.
New Hampshire (10.7%) has also posted double-digit economic growth, followed by Vermont (5.9%), Rhode Island (4.9%), and Maine (3.7%).
The report points out that the U.S. recovered all jobs lost in the recession by 2014. Through May this year, Connecticut’s recession recovery rate is just 81%—”one of the few states yet to recover all jobs lost in the recession.”
At 12%, Massachusetts also leads the region in post-recession job growth, just below U.S. growth of 12.5%. Over the same period, Connecticut’s job growth is just 4.6%, the slowest of the New England states.

Economic Sectors

The report looks for reasons behind the state’s economic malaise, claiming “if a few sectors had performed differently after the last recession, Connecticut could have turned declines into real GSP growth.”
Two key economic sectors—manufacturing and financial activities—saw significant declines in the years following the recession.
Manufacturing output, which grew by $16.2 billion in the decade prior to the recession, has declined $18.6 billion since 2010.
Financial activities output—including finance, insurance, and real estate—declined $8.3 billion after growing $22.6 billion.

Manufacturing, driven by surging demand in the aerospace and defense sectors, is one of the state's bright spots over the past 18 months.
Durable goods manufacturing output grew 0.39% in 2017, leading all sectors as the state's overall economy contracted 0.2%, the fourth decline in the past five years.
Since January 2017, manufacturing jobs have grown 3.3%, again leading all sectors and reversing years of losses—even as manufacturers struggle to address the growing shortage of skilled workers.
Financial activities jobs declined 0.4% since January last year. Finance and insurance economic output shrank 0.28% in 2017 while the real estate subsector was basically unchanged.

State's Tax Climate

What the Economic Digest report does not fully address are the factors behind the state's lack of economic and job growth, first suggesting "Connecticut has a city problem—or specifically lack of a major city."
However, the report then points out that Western Massachusetts, which also lacks a major city, has outperformed Connecticut in job growth since the recession.
What about the state's tax climate?

"There are claims that Connecticut's tax increases in 2009, 2011, and 2015 have cost our state in regional competitiveness and economic growth," the report notes.
"While that topic is beyond the scope of this article, the evidence presented here shows that Connecticut's job growth is similar to the level of upstate New York—despite the tax increases implemented in Connecticut. Both regions, however, lag western Massachusetts."
Those tax hikes—the 2011 and 2015 increases were the largest in the state's history—have not resolved Connecticut's recurring budget deficits. (The state now faces a projected $2.1 billion deficit in fiscal 2020 and a $2.6 billion gap the following year.)

Fiscal Stability Major Factor

Indeed, they only led to greater fiscal instability, the most significant factor hampering economic and job growth, as CBIA president and CEO Joe Brennan told the state Commission on Fiscal Stability and Economic Growth earlier this year.
"Solutions begin with addressing our fiscal problems," Brennan said.
"The gap between Connecticut and successful states is growing greater because we don't have the resources we need to invest in education, transportation, and workforce development.
"That's why we've got to get these fiscal problems behind us as soon as possible. If we can put our fiscal problems behind us, we can restore confidence, higher levels of investment, and greater economic growth."
Brennan added that Connecticut needs a broad commitment from policymakers to reform state spending and address the alarming growth of the state's debt and unfunded liabilities.
"The decisions that have to be made by policymakers are going to be extremely difficult," he said. "There's just no easy way. But making those difficult decisions is the key to restoring confidence.
"If this happens, I think you could start seeing investment levels going up because, in really simple terms, it's all about confidence, That confidence leads to investment, and that leads to growth."