It is a tale of two Connecticuts.
The economic outlook for the state represents a mixed bag of simultaneous contradictions in a large economy with 1.8 million jobs across 169 cities and towns.
The good news is that Connecticut has a low unemployment rate, large state budget surpluses, and its best bond rating in the past 20 years. But at the same time, the state is still struggling with worker shortages, a spike in inflation that recently cooled, higher-than-expected gasoline prices, and a chronic lack of affordable housing.
With unemployment below 4%, employers have been scrambling to cover 100,000 unfilled jobs for the past two years. That total dropped recently to 91,000, including more than 8,000 jobs in the health care industry that ranges broadly from laboratory technicians to nurses and doctors, said Chris DiPentima, the CEO of the Connecticut Business and Industry Association. Nearly 5,000 jobs are available in manufacturing, while the state also needs more than 2,000 truck drivers with a commercial driver’s license as the warehouse and transportation industries have been expanding. More than 1,000 jobs are available in the “fintech” industry of new financial technology companies, which has been growing in lower Fairfield County.
The issue is a double-edged sword as many workers are finding jobs, but employers are trying to increase productivity by finding the best workers. Overall, the state economy remains solid, officials said.
“I don’t think anyone will say we’re in a recession when you have unemployment less than 4%, but you’ve got to watch that number,” DiPentima told The Courant in an interview.
On the national political front, President Joe Biden has touted the accomplishments of “Bidenomics.” At the same time, some Republicans and conservatives have blasted Biden and complained about inflation, questioning whether the improving numbers are accurate.
In Connecticut, some officials are more optimistic than others.
“The continued cooling of inflation is welcome news for Connecticut residents, as is the announcement [in July] that the Federal Reserve no longer forecasts a recession,” said Sean Scanlon, a Democrat in his first term as state comptroller. “When you combine the improving national economic outlook with our state’s improved finances and our strongest six-month period of job growth since 2006, there is reason to be optimistic about Connecticut’s economic prospects in the second half of 2023.”
On the down side, one of the longtime giants of Connecticut business, Hartford-based health insurer Aetna, has started corporate layoffs as part of an overall plan by owner CVS Health Corp. to eliminate 5,000 positions nationwide in a move to reduce expenses.
The company is eliminating 521 positions, including 306 in Connecticut and more than 200 for employees who live or work remotely in other states. As part of its acquisition of Aetna, CVS agreed in 2018 to keep at least 5,300 Aetna workers in Connecticut for a minimum of four years. That agreement, however, has expired, leading to the layoffs.
State surpluses
After years of operating deficits and fiscal problems under various governors, the state has seen a turnaround with the first bond rating upgrades by Wall Street agencies in two decades.
State lawmakers and business leaders say the chief reason for the state’s success is a bipartisan budget deal that the legislature approved in 2017 when the state Senate was tied with 18 Republicans and 18 Democrats. The deal included important spending, bonding and “volatility” caps that prevents the legislature from spending beyond certain levels when excessive Wall Street money comes in through capital gains taxes during a booming market. Unlike the past, the legislature cannot spend the extra money. Instead, it must be placed in the rainy day fund for fiscal emergencies. When the fund reaches a certain threshold, the additional money must be directly used to reduce the long-underfunded pension obligations for state employees and public school teachers.
Recent projections showed that the rainy day fund will increase to $5.2 billion, which would allow $1.9 billion to be diverted to the pension funds. That includes $1.1 billion for the state employees’ fund and more than $800,000 for the teachers.
“I think Connecticut continues to progress primarily because we got our fiscal house in order,” DiPentima said. “We’re making progress.”
The state’s improvements, he said, are being recognized on a national level. In the CNBC annual survey of states, Connecticut moved from 38th to 31st as a place to do business.
The state, he said, still needs more business tax relief. One of the largest and long-running concerns for CBIA has been to convince the legislature to end the corporate surcharge that generates additional millions of dollars every year for the state.
“The temporary surcharge has been around for 15 years,” DiPentima said, adding that the surcharge adds to the cost of doing business.
Timothy Phelan, the longtime president of the Retail Merchants Network, said that the state economy is doing well at the moment — even though some retailers are doing better than others.
“What I’m hearing from business owners is that the economy overall is going good,” Phelan said in an interview. “Consumers are still shopping. They got scared off a bit when inflation was high, but inflation is dropping. Business owners are always leery about whether it will continue and how long it will continue, but for now, things are going pretty well. Jobs are steady, people are working, and inflation is coming down a little bit.”
A key factor that helped keep the economy afloat, he said, was the stimulus checks from the federal government during the coronavirus pandemic that helped fuel spending. Many of the huge problems with the supply chain during the pandemic, he said, have largely ended. Still, the future is uncertain.
“There’s always talk of a recession, and that talk spooks consumers and so they retrench,” Phelan said.
Looking ahead, Phelan has optimism as retailers gear up for their biggest shopping season of the year.
“As we move closer to Christmas, without unforeseen and unexpected events, I think we’re going to have a pretty good Christmas,” Phelan said. “Six months out from now, I think it will still be pretty good. But eight months out from now or 12 months out from now, I can’t predict.”
Christopher Keating can be reached at ckeating@courant.com