Although a pandemic-battered populace has pinned its hopes on a return to health and prosperity in 2021, economist Fred Carstensen is warning: Not so fast.
“People are saying we”™re going to have a robust recovery in 2021,” the director of the Connecticut Center for Economic Analysis at the UConn School of Business said. “Robust from what?”
Carstensen made his remarks at the Greater Norwalk Chamber of Commerce”™s annual Economic Outlook forum on Jan. 14. He was joined by Webster Bank Senior Vice President and Economist Steve Andrews, who painted a rosier picture ”” though on the national, not regional side, as did Carstensen.
Andrews, who told the chamber a year ago that the economy could be recession-resistant through 2021, admitted that no one could have foreseen Covid-19. Even so, the U.S. has recovered about 12.3 million, or 56%, of the 22.2 million jobs it shed in March and April. The country”™s unemployment rate, which skyrocketed from 4.4% in March to 14.8% in April, finished the year at 6.7%.
The first quarter of this year “might be kind of tough,” Andrews allowed, but the economy could still bounce back with a successful, widespread deployment of the various Covid vaccines.
On the other hand, he noted, the National Federation of Independent Business”™ (NFIB) Small Business Optimism Index fell 5.5 points in December to 95.9, dropping below the historical 47-year average of 98 points for the first time since May.
But Andrews noted several “green shoots” that he said are indicative of a recovery sooner rather than later. Among those are home prices being up 7% to 8% annually due a general move away from urban apartment settings; the fact that the U.S. recently did not import any Saudi crude oil for the first time in 35 years; and that the Federal Reserve last month forecast a 4.2% increase in GDP in 2021, 3.2% in 2022 and 2.4% in 2023.
Webster Bank”™s 2021 outlook is “eerily similar” to its 2020 forecast, Andrews said, with factors such as manufacturing orders, building permits and stock prices all looking to make positive gains; only consumer confidence and “probably” unemployment claims will remain problematic.
Led by the U.S. and China, global growth will return this year, he said, while tax and regulatory reforms will continue to pay dividends and a continued small rise in inflation will lift long-term rates. Covid-forced shutdowns and political differences at the federal level remain the great unknowns, he said.
As noted, Carstensen had a distinctly less encouraging view. “Connecticut has had the worst economic record in the country for the last 12 years,” he declared, having “never really recovered” from the 2008-09 recession. Adding to that, he said, Connecticut has among the worst balance of payments with the federal government of any state, getting 82 cents back for every $1 going to D.C., as opposed to a state like Kentucky, which has a $2.50 to $1 ratio.
In addition, the state Department of Revenue Services remains seriously understaffed and is “unable to collect revenue due from our Swiss cheese sales tax.” Annual revenue has declined by about $225 million annually relative to the tax base of aggregate household income, Carstensen said. “Companies understand that they”™re not going to get looked at and can under-report,” he said.
In addition, the state has failed to make itself competitive for IT infrastructure and data centers; to mobilize its universities to create collaboratives to support advanced manufacturing, biomedical, and IT; and has not worked hard enough to establish itself as a viable alternative to the New York and Boston job markets. As a result, he said, state residents are increasingly paying sales taxes outside of Connecticut, costing the state additional much-needed revenue.
Carstensen also dismissed estimates by the state Office of Policy and Management and by the Office of Fiscal Analysis as “the most optimistic projections you could currently make.” Referencing “A Christmas Carol,” he wondered: “Is this what will be or what might be?”
While the OPM and OFA have projected an aggregate deficit of nearly $7.3 billion for fiscal years 2021-24, Carstensen said he believes it could be more in the $10 billion range.
Further complicating matters is that the U.S. has “stopped investing in itself,” he said, as evidenced by most of its airports being Third World-quality, its ports being inefficient and the fact that presently the country has no dedicated high-speed rail lines; China as 22,000 miles of high-speed rail lines, with another 21,000 miles under construction.
The U.S. is also lagging in education, with its high school graduation rate of 92% trailing those of such unexpected nations as Kazakhstan and Slovakia (both 93%) and its ranking 28th in government funding for university research. “Failure to invest in ourselves makes us less and less competitive,” he said.
