While economic indicators paint a dreary picture, Connecticut could dodge a deep recession if history is a reliable guide.
In Connecticut’s economic past, recessions have typically mirrored the expansion that preceded them, according to Steven Lanza, an economist at the University of Connecticut and editor of The Connecticut Economy.
In the run-up to the recent economic slowdown, the state’s jobs have increased by a moderate 4 percent, a sign that Lanza believes foretells no more than a moderate economic decline in the next several years.
Inverse Relationship
“There has always been a significant inverse relationship between expansion and the correction that followed,” he said. “The job losses have gone up by a relatively small number, and that means the cutbacks should be mild. If it holds, there could be 40,000 layoffs instead of, maybe, 100,000.”
Lanza also sees a glimmer of hope offered in the number of jobs that were lost in the first quarter of 2008. That number was 2,000, not nearly as dramatic as past dips, such as the 7,000 jobs lost in the first quarter of 1989 preceding the recession of the early 1990s.
“The data is suggesting this could be mild, but it ultimately depends on the national economy,” Lanza said. “If the U.S. catches a cold, Connecticut could catch pneumonia.”
Despite the relative optimism, there is no argument among local economists that Connecticut is facing a downturn. The question is how severe it will be and how the state will respond.
Department of Economic and Community Development Commissioner Joan McDonald said the state “must prepare for tough times ahead” and “be ready to move forward when economic activity rebounds.”
State Tax Revenues Dip
“Planning is of the utmost importance,” McDonald said, adding that DECD’s goals for stimulus remain focused on brownfield redevelopment, transportation, housing and work force development.
The most troubling economic indicator, according to Lanza and other UConn economists, is the rapidly declining level of tax revenues. Sales tax revenue declined by double digits in both April and May — the first two months of the second quarter — and revenue from the real estate conveyance tax is off 40 percent in April and May after being down 30 percent in the first quarter.
“Most indicators have eroded, but the big surprise, especially for policy makers, is just how quickly the (state) surplus has eroded,” Lanza said. “We expect to see a downward trajectory for jobs to continue, but it depends on the national economy and there is no consensus on what will happen.”
