The September jobs report, published in December, showed that Connecticut is losing jobs. The state ranks 50th in payroll growth from 1989 to 2025 and is one of only three states that have failed to fully recover from the Great Recession.
After a period of encouraging growth in employment and state GDP following the pandemic, employment is now contracting even as defense spending and other drivers continue to lift GDP.
Projections of the impact of sharp federal reductions to SNAP and Medicaid and Medicare budgets suggest the cuts could cost Connecticut nearly 10,000 jobs. A dramatic increase in ACA premiums is also expected to drive thousands of households to forgo health insurance and significantly strain the budgets of those seeking to maintain coverage.
Severe cuts to federal grants, combined with a new tax on university endowments, are already resulting in hiring freezes and layoffs. When added to reductions in state support for UConn and threatened cuts to state infrastructure investment, the outlook points to contracting employment across Connecticut, with health care and education bearing most of the losses.
Nationally, two dynamics have supported the economy: sustained consumption by wealthier households — the top 20% — and data center investment to meet massive demand tied to AI. Eight of the 12 Federal Reserve districts — those without significant data center investment — already appear to be in recession.
Despite record stock market valuations, the national economic picture looks increasingly problematic.
While Connecticut is home to many wealthy households, it has relatively weak IT infrastructure, ranking behind Vermont and New Hampshire, and, despite having a highly competitive data center project on offer, appears to have little interest in changing that dynamic.
With the exception of the Yale-UConn quantum initiative — which, even if successful, will not become economically impactful for several years — there is little evidence that Connecticut will see meaningful job creation or growth in the next couple of years, even as job losses and the drivers of contraction are already visible and occurring.
The critical question is whether, in the next legislative session, the state — given its strong fiscal position and billions of dollars in reserve funds — will pursue initiatives to mitigate what appears to be coming. Connecticut has the resources to change course; the question is whether it has the will.
Fred Carstensen is the director of the Connecticut Center for Economic Analysis and a professor of finance and economics at UConn’s School of Business.
