How strong is CT’s economy? It depends upon whom you ask

Despite the relatively sunny economic outlook for Connecticut as it emerges from the pandemic, not everyone is convinced that things are as rosy as they seem.

On the plus side, the state expects to wrap up the current fiscal year, which ended on June 30, with a $157 million surplus, as well as a historically high rainy day fund balance of nearly $4.38 billion. Since the latter exceeds the 15% volatility cap threshold, the excess ”” $1.2 billion ”” must be transferred to either the state employees”™ retirement plan or to the teachers”™ pension fund, marking the second consecutive year that such payments could be made.

Over the spring, Moody”™s upgraded Connecticut”™s general obligation bonds credit rating from “A1” to “Aa3,” which was the state”™s first such upgrade in over 20 years. That was followed by three credit upgrades: S&P Global from “A” to “A+”; Fitch from “A+” to “AA-”; and Kroll Bond Rating from “AA-” to “AA.”

There has also been the encouraging number of people moving from the New York City-Newark-Jersey City region to the Nutmeg State ”” over 27,000 last year, according to CBRE ”” as well as the recent wave of companies relocating or opening offices here, including:

Philip Morris International, whose headquarters is moving from New York City to a yet-to-be-announced site in Fairfield County;
Manhattan”™s iCapital Network, which is opening a Greenwich office;
ITT, moving its headquarters from White Plains to Stamford; and
Tomo, which recently announced plans to establish its headquarters in Stamford.

On the negative side, Connecticut”™s economy is still trailing that of the nation”™s and most other states, according to the U.S. Commerce Department”™s Bureau of Economic Analysis.

The first quarter report found that real gross domestic product increased in all 50 states and the District of Columbia, with the nation”™s real GDP increasing at an annual rate of 6.4% to over $22 trillion.

Connecticut”™s $294.5 billion economy in the first quarter was the second largest in New England, after Massachusetts”™ $611.9 billion. But its 6% growth rate placed it 34th, with only Maine, which grew by 5.2%, doing worse in New England.

“The increases in first quarter GDP by state reflected the continued economic recovery, reopening of establishments and continued government response related to the Covid-19 pandemic,” the economic report noted.

“In the first quarter, government assistance payments, such as direct economic impact payments, expanded unemployment benefits and Paycheck Protection Program loans, were distributed to households and businesses through the Coronavirus Response and Relief Supplemental Appropriations Act and the American Rescue Plan Act.

“The full economic effects of the Covid-19 pandemic cannot be quantified in the GDP by state estimates for the first quarter of 2021, because the impacts are generally embedded in source data and cannot be separately identified.”

Personal income growth ”˜dead last”™

In a separate analysis, the Bureau of Economic Analysis reported that state personal income increased 59.7% at an annual rate in the first quarter of 2021 after decreasing 3.9% in the fourth quarter of 2020. Connecticut”™s personal income was up by 42% for the period ”” a figure that seems impressive until one realizes that it puts the state 50th.

Fred Carstensen, Connecticut Center for Economic Analysis director and University of Connecticut economics professor, took to LinkedIn to note that Connecticut “has the worst performing economy among all 50 states ”” dead last.”

Carstensen said, “It never recovered in jobs or real output from 2008; it disconnected from the national economy. I see very little in the now finished session that addressed this fundamental challenge; I don”™t see how the trajectory (which looks bad) is going to change.”

Connecticut Senate Republican Leader Kevin Kelly (R-Stratford) seized on the federal figures, saying that they demand “immediate attention and recognition from our state leaders that all is not well in Connecticut. The Connecticut Democrat economy is plagued by unemployment, low wages and stagnant growth. Connecticut is dead last in the nation in job growth and income growth and continues to fall behind every other state. We can no longer be fooled into thinking this is acceptable.”

Kelly said that Gov. Ned Lamont”™s approach to the economy “is why housing, health care and supporting a family is unaffordable in Connecticut. It”™s why people continue to struggle to break the cycle of generational poverty.

“Our state is unaffordable, thanks to years of Democratic rule, and falls behind every other state in giving middle-class families the quality jobs and opportunities they deserve,” he continued. “Income growth has not kept up with the cost of living, we are nowhere near recovering our job loss from the 2008 recession ”” over 10 years later.”

State Treasurer Shawn Wooden, who told the Business Journal in June that “We”™re definitely headed in the right direction,” stood by that statement.

“While Connecticut”™s economic growth may have trailed other states in New England during the first few months of 2021, it closed out 2020 during the period of October-to-December with the highest economic growth in New England as well as one of the highest levels of growth in the entire country,” he told the Business Journal. “This is why it”™s important to assess and measure the state”™s economic strength by reviewing its progress over the long term.

“While it”™s clear that there are significant challenges ahead,” Wooden continued, “there”™s also a number of signs that indicate that Connecticut has made substantial fiscal progress in the past few years and is headed in the right direction.”

He cited the budget surplus and rainy day fund ”” “10 years ago, there was no money in this fund due to the impact of the Great Financial Recession of 2008” ”” as well as the credit rating upgrades, which he said “occurred for the first time in the state”™s history, representing a major shift in the trajectory of Connecticut”™s fiscal health.”

“While many of our state”™s fiscal challenges will not be solved overnight, there”™s clear evidence that the state is making progress towards finding long-term solutions to address fiscal changes that have been present in Connecticut for decades,” the treasurer said.

“But it”™s also crystal clear that we are on a different path now and continued discipline in maintaining smart fiscal practices with the right investments in our state”™s future will strengthen our economy for the long-term.”