As we enter 2011, Connecticut”™s economy is still facing many uncertainties. While it”™s true we have been growing the economy out of the deepest recession since the great depression, the growth has been and will continue to be glacially slow. Â And while a double dip recession is unlikely, rapid growth is also quite unlikely. So what can we expect in the new year?
Numerous Connecticut Business & Industry Association surveys of business executives and area national and international economists are all saying the same thing ”“ continued slow growth. Economists expect an average of less than 3 percent in both GDP and Connecticut GSP for the entire 2011 year. Connecticut will have several higher growth areas, including exports and business to business sales. Service or manufacturing firms involved in the international marketplace are expected to outperform other companies operating only domestically. Some of these companies may even have excellent years, but they will be outliers.
But the good news is that compared to 2010 fewer firms will suffer substantial losses or will fail. Most will struggle along showing paltry year-over-year gains or flat sales. Why? Consumers are still struggling and scared. Whereas many are successfully reducing their debt loads, this does not mean that all consumers will be spending. Many people will save a cushion despite the capacity to spend and will put off instant gratification. Because of continued jobs weakness even those folks who are doing well are still worried. They see their neighbors, friends, relatives and family members still out of work or underemployed. Joblessness may even increase above its 9.8 percent U.S. rate and 9 percent Connecticut rate as we go forward into 2011 and some discouraged workers reenter the labor force.
The state of Connecticut has seen a loss of 103,000 jobs in the recession and saw personal income plummet 4 percent in 2009. Various estimates see the state adding between 6,000 and 22,000 net new jobs in 2011. So even in the best case nearly 80 percent of those who have lost jobs will still be stuck in joblessness come new year 2012.
Unfortunately, I don”™t see us hitting the best case scenario. We”™ll more likely add around 10,000 or so jobs as we see productivity numbers increasing at an unsustainable rate on our surveys. Furthermore, we also see weak business confidence and persisting uncertainty regarding federal and state policy decisions that impact business return on investment. Indeed, it is paramount that both in Washington and Hartford policy makers make decisions to boost business confidence and improve the environment for business success if we are to grow faster than 3 percent and get people back to work. Income matters, too. We will likely end 2010 with another year of negative personal income growth but we are likely to see weak but positive personal income growth in 2011. With low inflation any growth above 2 percent, which is likely, adds to consumer spending power.
Job growth recently has been uneven. The good news is October figures saw gains of 5,300 jobs, but this still leaves the state at a net negative-800 jobs year-over-year. The sectors showing gains year over year are: retail trade, professional and business services, educational and health services, leisure and hospitality. Sectors with losses include construction, manufacturing, wholesale trade, transportation warehousing and utilities, information, financial activities, other services and government. It is telling that the sectors that are core base industries with the highest multiplier effects for jobs and wealth ”“ manufacturing and financial activities ”“ are net job losers from 2009.
CBIA surveys show potential job creation as still weak with almost equal number of firms saying they will add jobs as will cut jobs over the next quarter. Weak consumer demand and continuing difficulties regarding credit availability for small and midsize firms exacerbate the challenge. About half of firms seeking credit last quarter said they were having difficulties obtaining the credit they needed.
Recent CBIA surveys show that about half of executives expect their firms to be profitable, about 20 percent expect a net loss, and 30 percent expect to break even. Only half the executives expect growth for their firm over the next year.
Finally, government fiscal challenges remain a drag. Not only is Washington seeing herculean fiscal challenges, but many states and municipalities have equally daunting issues. Our state is in the middle of this. Connecticut needs to solve its fiscal crisis so that when conditions begin to truly get better as many leading economists predict for 2012 the investments Connecticut firms make are local and help employ our citizens rather than in operations they may have in other states or overseas. We do control part of our own destiny in economic recovery. We need to get that right.
Pete Gioia is vice president and economist at CBIA. He can be reached at gioiap@cbia.com.
