As we navigate a sea of growing risks, 2016 could be a positive turning point. The good news is we have several strong areas for near- and long-term growth that were not visible prior to the Great Recession of 2008.
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As we navigate a sea of growing risks, 2016 could be a positive turning point.
The good news is we have several strong areas for near- and long-term growth that were not visible prior to the Great Recession of 2008.
Key factors concentrate around manufacturing, energy and housing, and their combined impact on consumer confidence and spending power.
Manufacturing is walking on two legs
Commercial aerospace is back and the popularity of the new Pure Power Pratt & Whitney engine is a game changer. There are massive orders for this product, which is assembled in Greater Hartford (80 percent of the engine’s value comes from about 700 Connecticut subcontractors).
Worldwide demand from surging middle classes for air travel will double the number of jets in the sky by 2025 and lead to opportunities for Connecticut spanning a generation.
The effects of this are just beginning and will grow in earnest in 2016.
But, that’s not all.
Electric Boat is producing two attack subs per year and that will simultaneously lead to record defense spending for our state. About 400 subcontractors sprinkled throughout Connecticut will share in this activity.
Energy prices staying low
Since 2014, we‘ve all seen lower gasoline prices putting about $700 in extra spending power in the average family’s pockets. This will continue for the foreseeable future with less demand from China, and production from Iran and the Saudis continuing to pump even at lower prices to maintain market share.
But natural gas is an even bigger story. Pipeline underway from the Marcellus Shale in Pennsylvania will bring the cheapest natural gas on earth into New England and Connecticut in 2018 and 2019. This will create an abundant supply and have a positive impact on prices for both industry and consumers.
Housing is back
We will see a good year in housing in 2016 aided by continued low interest rates. Yes, the Federal Reserve will raise rates in 2016, but slowly and with pauses. This will keep mortgages cheap while lenders want to lend.
Furthermore, as we see more jobs in Connecticut, Millennials will move from renting and living at home to home buying. Housing is a powerful driver of economic activity.
All of this will help increase consumer spending.
Risks remain
Unlike manufacturing, housing and energy, financial service job numbers continue to struggle.
The insurance industry faces continued changes, especially in health care, while cost concerns remain significant for banks and market-related financial services.
Unfortunately this has degraded job quality during the recovery as more recovered jobs have been in lower-paying healthcare services, and hospitality and leisure, and fewer in very high-paying financial services.
In addition, the lower-paying sectors have weak job multipliers (for every new job “x” number of other jobs are created) whereas financial service jobs have a very large multiplier effect.
Exporters are feeling the impact of a higher U.S. dollar versus foreign currencies.
China’s economy is slowing and this will impact our trading partners who have closer ties to China as customers of their commodities. It’s a catch 22 because China’s slow growth and lower demand ensure a low price ceiling for oil.
Europe is growing but the south of Europe remains weak. In addition, India is growing strong but Latin America is struggling along with Russia and much of Eastern Asia.
We are all too aware that terror still exists as a real problem, too, and that can stall global growth.
However, Connecticut’s government fiscal issues remain the biggest specific challenge for our state to overcome to see vibrant, steady growth.
Lawmakers must continue to adopt policies that lead to sustainable and predictable spending, take care of our budget needs without tax increases, and find a way to roll back the most growth-inhibiting taxes.
If we take care of problems we can control, like Connecticut’s fiscal stability, we can weather the global storms that we cannot control and create more opportunity and prosperity in our state.
Peter Gioia is an economist and vice president at the Connecticut Business & Industry Association.
[See what others are saying on HBJ's Economic Forecast 2016 page]
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