Jobs, Jobs, Jobs - An Economic UpdateMarch 01, 2011
By Peter Gioia
Vice President and Economist,
Connecticut Business & Industry Association
A critical factor for real and sustained economic recovery for Connecticut comes down to one word - jobs!
While Connecticut's economy has been gradually improving since June 2009, the "official" end of the recession, job growth here has been excruciatingly slow. At 0.3 percent, the state's job recovery rate lags significantly behind the 0.9 percent we're seeing nationally -- which is itself extremely sluggish. Connecticut added only 5,300 net new jobs in 2010, compared with 45,000 added in neighboring Massachusetts.
What's the Prognosis for 2011?
Recent CBIA surveys show some encouraging signs. Our latest quarterly economic survey reported that nearly half (46 percent) of business executives responding expect to be hiring in 2011. Of those, 43 percent expect to increase their workforce by more than 6 percent. Only 12 percent expect conditions to worsen for their firms. In addition, 44 percent expect growth in production and sales, and 45 percent expect the U.S. economy to continue growing.
Many Connecticut businesses export their goods and services nationally and worldwide, and growth in these markets has led to local job creation. Exports are expected to continue growing and have the potential to set a record for growth in 2011. In addition, surveys show that credit conditions, while still weak, are up markedly from two years ago, allowing companies to obtain much needed capital to grow their businesses.
Consumer-spending numbers have become much more positive, which translates into the buildup of confidence and business inventories. All these signs point to a continued but uphill trek to a sustainable recovery.
Crisis and unrest abroad are major concerns for the fragile economy. While continued unrest could lead to further economic slowing, there is hope that political changes in the Middle East could undermine terrorism and ultimately make access to energy more secure in the long run, which would positively affect oil prices. Also, stronger growth in eastern and southern Asia, Latin America and parts of Europe are fueling demand for U.S. goods.
The Impact of Public Policy
Although all these factors affect U.S. economic growth, public policy decisions made at the State Capitol do have a significant impact on Connecticut's rate of economic recovery. That's why it's vital for the state to put its fiscal house in order and improve our less-than-friendly environment for job creation if we are to keep the economy growing. Governor Malloy's budget proposal is a good first step and sends the very positive message that Connecticut is, in the governor's words, "open for business." It includes several measures to accelerate job creation:
- Keeps almost all business tax credits intact
- Creates incentives for companies to add jobs
- Allows companies to exceed the 70 percent cap on the use of corporate tax credits if they create new jobs
- Creates business opportunities through substantial capital investments in transportation, housing and clean water infrastructure
The governor's plan also calls for substantial tax increases totaling $1.5 billion to close our enormous budget deficit - pegged by the state Office of Fiscal Analysis at nearly $3.2 billion in FY 2012 and almost $3 billion in FY 2013.
It is absolutely critical that the administration achieve its proposed $1 billion per year reduction in each of the next two years in state employee compensation costs. It is also imperative that the administration work with the state legislature to identify additional spending cuts to reduce the size and scope of the $1.5 billion tax increase on residents and businesses in our state.
If additional savings can be found, some of the tax increase proposals, like the personal income tax increase that hits small businesses (for example, firms formed as S corporations, limited liability companies and other similar structures) that pay taxes on their business income under the personal income tax, may be lessened.
The Road Ahead
Moving forward, there is every reason to believe Connecticut's economy will continue growing. That means creating far more than the 5,300 net new jobs created last year. Some economists are projecting an increase of 14,000–22,000 jobs this year, but we must hit higher numbers to have sustained growth. Houses are not going to sell, consumer sales are not going to increase and our economy will not get moving again in earnest without jobs as a core driver of activity.