Venture Capitalism in Connecticut • 12
Expert Panel Predicts at Least Five Years Until Connecticut’s Economy Recovers from the Coronavirus Pandemic • 16
Graduating in a Recession • 18
CONNECTICUT ECONOMIC ACTIVITY REPORT Summer 2020
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May 2020 The Summer 2020 edition of the Economic Activity Report, published by the New Haven Economic Performance Laboratory, represents a collaborative and pedagogical effort by faculty and students of the Department of Economics and Business Analytics. It contains economic analyses that focus on the economic conditions of the New Haven region and Connecticut.
Prepared by the
New Haven Economic Performance Laboratory Online at www.universityofnewhaveneconlab.org in association with the Department of Economics and Business Analytics Pompea College of Business University of New Haven This report is generously underwritten by the Pompea College of Business Advisory Board.
3 / Executive Summary 4 / New Haven Region Economic Performance Index 5 / Housing 6 / Unemployment 7 / Real GDP of Connecticut 8 / Consumer Price Index — Energy 10 / Energy — Powering the Economy 12 / Venture Capitalism in Connecticut 14/ Roadway Infrastructure in Connecticut During the COVID-19 Crisis 16/ Expert Panel Predicts at Least Five Years Until Connecticut’s Economy Recovers from the Coronavirus Pandemic
This issue specifically contains certain economic data series analyzed by the Department of Economics and Business Analytics Capstone students. This examination is intended to further student understanding of the regional economic climate and conditions while providing clear, understandable interpretations of its economic climate and conditions. The University of New Haven student analysts of today are our future analysts. This publication builds upon our previous efforts to analyze Connecticut, as well as the Greater New Haven area, as compared to our neighboring states. This issue begins to depict the economic impact of the COVID-19 pandemic, and although our data are backward-looking based on the previous quarter’s performance, we are beginning to see signs of economic downturn. More specifically, as of this writing, the U.S. Commerce Department today reported that the U.S. economy contracted 4.8 percent in the first quarter of 2020, the worst contraction since the Great Recession of 2008. Sadly, we expect those numbers to be worse in the coming months. To better understand what Connecticut’s recovery could look like going forward, one of our Economics students, Hannah Providence, has written an article, using a mini-Delphi technique, with input from business, industry, and academic experts; her “forward-looking” article predicting the Connecticut recovery can be found on page 16. Additionally, Assistant Professor Patrick Gourley, Ph.D., has provided an article targeted toward graduating college seniors who are trying to determine whether to enter the workforce during this time of economic downturn or to attend graduate school. In addition to visiting the Laboratory’s website, I invite you to visit another student initiative that involves posts, commentary, and noteworthy contributions from students, faculty, alumni, and members of the broader community: The Economics Collective (http://unheconomicscollective.ning.com). The Collective, as it is affectionately known, is a thought-leadership and learning space that fosters the integration of theory, technical competencies, real-life learning, and communication skills. With my very best,
18/ Graduating in a Recession 20 / The Collective 21 / About the New Haven Economic Performance Laboratory
2
CONNECTICUT ECONOMIC ACTIVITY REPORT • SUMMER 2020
Brian T. Kench, Ph.D. Dean, Pompea College of Business
EXECUTIVE SUMMARY The United States and subsequently Connecticut is on the precipice of economic disaster. Driven exclusively by the novel coronavirus global pandemic, the U.S., and Connecticut in particular, are in for a rough ride over the next few years. This edition of the Connecticut Economic Activity Report is a precursor of things to come. As you can see from the “dashboard” below, the forecasts for our key performance indicators (KPIs) are headed in the wrong direction, showing the early signs of the pandemic’s economic impact, as it migrates from Asia through Europe and begins to hit our shores. Reports like this are backward-looking in their nature, allowing analysts, in this case, our Economics students, to delve into the details and critically analyze the inputs of each KPI to better understand what happened and why. This edition of the University of New Haven’s Connecticut Economic Activity Report not only reports on what happened over the last quarter but begins to look toward Connecticut’s recovery, postCOVID-19. As such, one of our economics and business students, Hannah Providence, has conducted a mini-Delphi survey with a group of business, industry, and academic experts to predict what
the Connecticut recovery will look like. Additionally, Assistant Professor Patrick Gourley, Ph.D., has provided an article focused on graduating college seniors in the COVID economy, posing the question: should they attempt to enter a deeply recessionary economy or stay in school and obtain a graduate degree? Both of these articles are timely and forward-looking. Finally, this report has now become an online publication given the COVID-19 protocols. Along with the University of New Haven Collective, a live blog of reports and analyses from our students and faculty, which can be found at http://unheconomicscollective.ning.com, you can stay abreast of the most up-to-date economic data and analysis available. Michael Driscoll, EMBA ‘87 B.S.M.E.T., Roger Williams University Managing Editor Capstone Coordinator Adjunct Faculty
Connecticut Performance at a Glance KPI
STATUS
FORECAST
Connecticut Employment Real GDP Roadway Infrastructure Spending CPI — Energy Economic Performance Index Housing Starts Venture Capital Investment *Forecast factors in information resulting from COVID-19 pandemic.
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NEW HAVEN REGION ECONOMIC PERFORMANCE INDEX By Adam Gregg
T
he New Haven Region Economic Performance Index (NHREP Index), recently updated to January 2020, measures the performance and strength of the economy in southern Connecticut, specifically the New Haven region. The data used to form this index do not represent the performance of the economy since the COVID-19 pandemic. The NHREP Index comprises five separate components: Education and Health Services for all employees in New Haven, Conn.; New Private Housing Units Authorized by Building Permits for Connecticut; Average Weekly Hours worked in New Haven, Conn.; Average Weekly Earnings in New Haven, Conn.; and Unemployment in (reversed) for New Haven. All components of the index have been seasonally adjusted.
Table 1
Unemployment in January 2020 remained at 3.6 percent from the previous month and fell from 3.8 percent to 3.6 percent year on year. For the purposes of the index, however, the unemployment rate was reversed for the analysis.
Measurement
As Table 1 shows, the New Haven region has experienced a 6.83 percent increase in performance over the past year, with a 8.27 percent increase from the previous month. We see a large increase in building permits in both year-over-year and month-over-month at 40.5 percent and 52 percent, respectively. Both average weekly hours and earnings increased slightly year-over-year by 2.03 percent and 2.14 percent, respectively, showing a possible correlation between the two markets.
Average Weekly Hours Worked in New Haven, Conn. Average Weekly Earnings in New Haven, Conn.
Our forecast, as reflected in Figure 1 and Table 2, predicted an increase through Q2, but without data representative of the COVID-19 pandemic, this prediction is sure to be a gross overshot. The forecastHybrid package in R, which fits multiple models from the forecast package and then combines them using either equal weights, or weights based on in-sample errors, is used to forecast the index for a six months ahead.
Adam Gregg ’20 Major: Economics, concentration in Behavioral Economics Hometown: Bellville, Ohio
4
Figure 1: New Haven Region Economic Performance
CONNECTICUT ECONOMIC ACTIVITY REPORT • SUMMER 2020
Education and Health Services in New Haven, Conn. New Private Housing Units Authorized by Building Permits for Connecticut
% change from previous month
% change from previous year
+0.34
+2.03
+52
+40.5
+0.5
+2.14
+2.8
+5.77%
0
-.2
+6.83%
+8.27%
Unemployment for New Haven NHREP Index
Table 2 DATE FEB-20
POINT FORECAST
LO 80
HI 80
LO 95
HI 95
215.335
215.335
233.842
181.945
242.339
MAR-20
215.976
215.976
235.254
179.871
243.600
APR-20
215.663
215.663
238.836
178.967
247.062
MAY-20
217.805
217.805
239.777
173.507
248.239
JUN-20
219.578
219.578
241.079
172.937
249.604
JUL-20
219.258
219.258
240.828
170.358
249.415
Data are from the Federal Reserve Bank of St. Louis FRED data (https://fred.stlouisfed.org)
HOUSING By Michael Reddy
A
s represented by the graph, housing prices in the New Haven-Milford area have been on a steady incline since the first quarter of 2014. At that time, the average price of a house in the area was $171,650, and, as of the fourth quarter of 2019, the average price has risen to an average price of $191,780. This represents a $20,200 increase and a growth of 10.54 percent of value. Housing prices have also been on the rise since the first quarter of 2014 in the BridgeportStamford-Norwalk area. During the first quarter of 2014 the average price of a home in this area was $187,930, and, as of the fourth quarter of 2019, it had risen to $207,570. This represents a $19,640 increase and a growth of 9.54 percent, being slightly lower than New Haven-Milford. However the two had very different 2019s as New HavenMilford started 2019 with an average home price of $183,760, showing an increase of $8,020, wheras Bridgeport-Stamford-Norwalk started 2019 with an average home price of $203,140 showing an increase of $4,430.
Figure 2: All-Transactions House Price Index, New Haven-Milford (Msa)
Figure 3: All-Transactions House Price Index, Bridgeport-Stamford-Norwalk
However, rising housing rates are likely a thing of the past as the housing market looks to be in trouble due to the fallout from COVID-19. With many nonessential businesses closed, unemployment has risen, and rent payments aren’t being made. Thus, property value is falling. The National Association of Realtors has surveyed its members, who reported an 11 percent drop in buyer traffic and 7 percent lower seller traffic. The NAR predicts a 10 percent reduction in sales, at least over the short term, as a consequence of the coronavirus. Property values are likely to fall in New Haven-Milford as well as the BridgeportStamford-Norwalk.
Michael Reddy ’20 Major: Economics Hometown: Forest Hills, New York
www.law.com/ctlawtribune/2020/03/18/the-coronaviruspandemic-and-the-crisis-in-real-estate/ Data are from the Federal Reserve Bank of St. Louis FRED data (https://fred.stlouisfed.org/series/ATNHPIUS35300Q), (https://fred.stlouisfed.org/series/ATNHPIUS14860Q).
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UNEMPLOYMENT By Sara Bruckmann
A
s of March 2020, Connecticut’s unemployment rate has increased slightly to 3.7 percent. Although both are still below the natural rate of unemployment, the national rate has increased a bit more than Connecticut’s, currently at 4.4 percent. Two of Connecticut’s three surrounding states have seen an increase in unemployment in recent months as well. Unemployment rates in New York and Rhode Island have jumped to 4.5 percent and 4.6 percent, respectively. On the other hand, the Commonwealth of Massachusetts has remained steady at 2.9 percent. An increase in unemployment is expected to be seen nationwide. With the outbreak of COVID-19, the job market has suffered greatly, and the regulations for those applying for unemployment insurance have been altered to advocate for the millions of Americans whose jobs are not considered essential and cannot work during this time. Over 22 million Americans have filed unemployment claims since March 13, when President Trump declared a national emergency in response to the COVID-19 pandemic, 350,000 of which are Connecticut residents. Typically, in two years, Connecticut would see fewer claims than have been filed in the past four weeks, according to the Connecticut Department of Labor.
Figure 4: Unemployment: Conn. vs. U.S.
Figure 5: Unemployment: Conn. vs. Mass., N.Y., R.I.
Companies all over the state have been affected by the COVID-19 outbreak. Governor Lamont has asked Connecticut residents to “Stay Safe, Stay Home,” and all nonessential businesses have been closed until at least May 20. Yale New Haven Health has begun administering antibody tests to determine who is safe to return to work. These tests should be able to determine whether someone has been exposed to COVID-19, and therefore has an immunity to it. If successful, these tests may help Connecticut’s workers get back to their jobs sooner than originally expected. The St. Louis Federal Reserve estimates that the national unemployment rate may reach 32 percent in quarter two of 2020, with 47 million Americans out of work. During the Great Depression, unemployment reached its peak at 24.99 percent in 1933.
Sara Bruckmann ’20 Major: Behavioral Economics Hometown: Trumbull, Connecticut
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CONNECTICUT ECONOMIC ACTIVITY REPORT • SUMMER 2020
Bizjournals.com, www.bizjournals.com/stlouis/news/2020/03/31/st-louisfed-economist-47-million-could-lose-their.html. “Federal Reserve Economic Data: FRED: St. Louis Fed.” FRED, Federal Reserve Bank of St. Louis, fred.stlouisfed.org/. Long, Heather. “U.S. Now Has 22 Million Unemployed, Wiping out a Decade of Job Gains.” The Washington Post, WP Company, 16 Apr. 2020, www.washingtonpost.com/business/2020/04/16/unemployment-claimscoronavirus/. Putterman, Alex. “Connecticut Hospitals Explore Antibody Testing for When Coronavirus Threat Fades, but Experts Warn of Limitations.” Courant.com, 21 Apr. 2020, www.courant.com/news/connecticut/hc-news-coronavirusantibody-tests-20200421-vu6r6so2uvfexama6td6cophaa-story.html.
REAL GDP OF CONNECTICUT By Zoe Wilkins
R
eal gross domestic product (“real GDP”) is a measure of economic growth, and this analysis will look into Connecticut’s economy. The data presented in this analysis are from the Office of Governor Ned Lamont.1 After the decrease from the first and second quarters, there was an increase in real GDP for the third quarter, 2019.
Figure 6: Real GDP in Conn.
Looking at the information, there has been an increase from 2019’s second quarter. Real GDP rose up to 2.1 percent during the third quarter. Commissioner Lehman said that what contributed to the growth of GDP was the stabilization of state finances, along with a reduction of relying on debt. The fourth quarter is estimated using the FRED Data Set and U.S. Bureau of Economic Analysis. The information given was that GDP would go from 2.1 percent to 0.9 percent.2 On January 8, 2020, the new forecast from the Federal Reserve Bank of Philadelphia stated that there will be a decrease in Connecticut’s economy. The decline in Connecticut’s economic index was at about 0.13 percent in January. This forecast was based off of the coincident index, which is formed off of unemployment rates and payroll data. Connecticut has made little progress in recovering jobs and wages. Phaneuf stated that Connecticut may enter into a recession within the next three months. The governor’s budget agency, along with the legislature’s neutral Office of Fiscal Analysis, forecasted that, by mid-November, Connecticut’s state income tax receipts will grow 13 percent over the next few years, based on economic trends.3
On April 24, 2020, the Congressional Budget Office released that they expect GDP in the United States to decrease 40 percent year over year. This decrease in GDP will drop 11.8 percent from the first quarter to the second. COVID-19 has affected economic activity, but, by the time the third quarter is in effect, there should be a 5.4 percent increase year over year in that quarter, or a 23.5 percent increase from the second quarter. The federal deficit will end up going to $3.7 trillion by the end of 2020 if the efforts to mitigate economic problems continue. It has been estimated that, in 2021, the United States will have a deficit of $2.7 trillion.4
1
Zoe Wilkins ’20
2
Major: Economics Hometown: Plainfield, New Jersey
3
Governor Lamont and Commissioner Lehman on Connecticut’s Economic Growth in the Third Quarter of 2019
FRED Data Set and U.S. Bureau of Economic Analysis
Fed projects economic slip for CT in first of 2020 by Keith M. Phaneuf
4
CBO predicts a 40 percent GDP drop this quarter
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CONSUMER PRICE INDEX — ENERGY By Zachary Westfahl
C
onnecticut continues to be the fifth highest price per kWh in the United States. From the fall Economic Activity Report to January of 2020, Connecticut has experienced a rate increase of 64 cents per kWh. This is not such a stark contrast to the U.S. average increase of 2.5 percent in residential rates over the same period. However, once January 2020 hit, both major energy providers in Connecticut, Eversource and United Illuminating, increased their rates, so consumers will be paying 19-24 percent more per month for electricity. It is yet to be determined whether the COVID-19 pandemic will alter the electricity rates for Connecticut. Connecticut is pushing harder than ever to become “greener” in recent months. Legislators have begun work on setting goals even higher than Governor Ned Lamont had set. This “Green New Deal” for Connecticut requires emissions be lowered by 80 percent by 2050. An initiative that would traditionally be headed by the Energy and Technology Committee is being headed by the Labor and Public Employees Committee. Whether this will cause conflict is yet unforeseen, but the green goals are strongly backed by senators such as Julie Kushner, stating, “Everything we do affects all of the workers in Connecticut, and so moving to a green economy, a green deal is really critically important. Not just for those looking for future work but also for those working today” (Strong, 2020). The bill is quite comprehensive with a focus on education and spending in low-middle income areas and will establish an Environmental Equity Working Group to determine target areas for funding. Figure 7
8
CONNECTICUT ECONOMIC ACTIVITY REPORT • SUMMER 2020
Table 3: Lowest Rates
STATE
CENTS/KWH
NORTH DAKOTA
9.01
LOUISIANA
9.05
OKLAHOMA
9.06
WASHINGTON
9.43
MISSOURI
9.52
Table 4: Highest Rates
STATE
CENTS/KWH
HAWAII
31.70
RHODE ISLAND
24.24
MASSACHUSETTS
22.91
ALASKA
22.48
CONNECTICUT
21.93
Figure 8
This pursuit of clean energy started before the COVID-19 pandemic, but its continuation remains ambiguous. Many are facing furloughs, and a struggling economy may not be able to take the cost burden required to turn green so soon without major economic impact. Senator Kushner herself said, “We can’t just put people out of work and expect our economy to move forward,” when addressing the “Green New Deal” initiative.
Zachary Westfahl ’20 Major: Behavioral Economics Hometown: Fond du Lac, WI
www.ctnewsjunkie.com/archives/story/20200304_connecticut_offers_its_own_version_of_a_green_new_deal/#more https://fred.stlouisfed.org/ www.chooseenergy.com/electricity-rates-by-state/
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ENERGY: POWERING THE ECONOMY By Zachary Westfahl
T
here is no doubt the current public health COVID-19 crisis has led to an economic crisis. The extent of this crisis, its depth and breadth, is yet to be determined. Economists are examining various key performance indices to assess the situation and formulate policy recommendations to address the then-current state of economic affairs. Recently, it has become more common to use electricity consumption as a measure of economic performance because electricity use data is generated sooner than other economic indicators such as Gross Domestic Product (GDP).1 Specifically, Steve Cicala, an economist at the University of Chicago, found that measures of electricity consumption more accurately identified the fall and rise of economic activity before GDP reported the same. Now, electricity consumption is being used to predict a recession because of the COVID-19 pandemic. To understand the current economic environment, we compare the COVID-19 pandemic recession to the 2008 Great Recession. The root cause of each economic recession is different. The 2008
Great Recession was caused by a bank lending crisis and an overissuance of sub-prime home mortgages. The current economic downturn results from a direct order from state and local governments to shut down economic activity for the protection of public health. In each instance, individuals were unable to pay day-to-day bills. Even with government programs providing relief, we could see many defaults on mortgage payments the same as we did in 2008. While this may seem like a necessary evil to protect lives, a housing market collapse will leave a resounding effect on the economy long after we stop incessantly using hand sanitizer. Our awareness level of economic downturns are different. In 2008, the United States was caught off-guard by a bank failure; our recognition came far too late. Today, in 2020, we are acutely aware that the economy is being affected, and we are already taking steps to offset the downturn. Both government and private business are doing their part to stave off real catastrophe. The CARES Act of 2020 and charitable donations are already being implemented.
Figure 9: U.S. electricity demand by region 1/14/2020 – 4/12/2020, Eastern Time
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CONNECTICUT ECONOMIC ACTIVITY REPORT • SUMMER 2020
Figure 10: How electricity data compared with economic activity in 2008
This pandemic is a different beastfrom the ones we have encountered before. Even recession-proof industries like fast food and alcohol are taking a hit because of government mandates regarding public health concerns. We have not just started excessively washing our hands, but rewritten our daily lifestyles to prevent the spread of the COVID-19 virus. In these atypical times, we can expect to see an atypical economy, but only time will tell just how different it will be.
1
Steve Cicala, an economist at the University of Chicago, performed economic research in 2012 and found that power outage data provided a quicker view of U.S. economic activity during the Great Recession than monthly unemployment released weeks or months later.
Source: https://www.nytimes.com/interactive/2020/04/08/upshot/electricity-usage-predict-coronavirus-recession.html
Zachary Westfahl ’20 Major: Behavioral Economics
Hometown: Fond du Lac, WI
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VENTURE CAPITALISM IN CONNECTICUT By Brynn Slicer
V
enture capital funds are equity investments in a company whose stock is considered worthless until the company matures. Venture capital investments are not only monetary but can come in other forms such as expertise. Venture capital investments can generate highly skilled jobs and trillions of dollars for the U.S. economy. Considering current events and the impact on the economy, Venture Capital is more important than ever. Following the end of the COVID-19 pandemic, Venture Capital will provide jobs and help stimulate the economy. Figure 11, which includes data from 2013 to the present, indicates that both New York and Massachusetts have been investing less compared with previous years, whereas Connecticut has already spent more.
Figure 11: Venture Capital Investment, CT, MA, NY
The figure, which includes data from 2013 to the present, indicates that both New York and Massachusetts are seeing similar trends. Nevertheless Connecticut has fluctuations in that the state is attempting to invest more in venture capital. All three states are following a similar downward trend starting in the first quarter of 2020.
Figure 12: Number of Deals
The anemic performance since the 2008 Great Recession is prevalent in the Seed Stage and Expansion Stage for a number of deals; however, the Early Stage appears to be performing greater than expected. Figure 13 shows similar trends in terms of number of deals. The Seed Stage and Expansion Stage are lacking. Despite, the other stages performing worse than expected, the Early stage is greater than expected.
Figure 14 1.8 1.6
STRONG BUT DECLINING
STRONG AND ADVANCING
1.4 1.2 1
-20%
-15%
-10%
-5%
0%
5%
10%
15%
0.8 0.6
WEAK AND DECLINING
0.4 0.2
WEAK BUT EMERGING
0 -0.2
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CONNECTICUT ECONOMIC ACTIVITY REPORT • SUMMER 2020
20%
Figure 13: Amounts
The bubble charts to the right convey three key metrics for each investment stage: (i) the measure of strength of investment in Connecticut relative to the nation; (ii) the rate of change, the growth rate of the particular investment stage; and (iii) the number of deals or the amounts invested, as the case may be; the relative size of the bubble. The focus period, the end points, were selected based upon the recent recession. For simplicity, the construct illustrated in the figure assists in evaluating investment stage performance. The figure illustrates that the Seed Stage, Early Stage, and Expansion Stage are all strong. Despite lacking expectations, as determined in location quotient, the Seed Stage is still advancing. As for the Early Stage and Expansion Stage, each is strong but declining. A similar pattern appears in invested amounts for the Seed Stage and Early Stage. The Expansion Stage is strong and advancing. A similar pattern appears in invested amounts for the Seed Stage and Early Stage. However, in invested amounts, the Expansion Stage is strong and advancing. The Seed Stage and Expansion Stage are teetering on the strong but declining quadrant. In sum, the trends associated with the general activity of traditional venture capital shows that venture capital appears strong in Connecticut in 2019. Amounts invested and number of deals appears strong, despite falling short of most expectations set during the 2008 Great Recession. It is during the last quarter of 2019 that the Early Stage allowed Connecticut to exceed expectations, but this is now declining. My prediction for 2020 is that firms within healthcare, cyber security, and supply chain industries will receive the most venture capital. These industries could potentially experience growth, while
Figure 15: Number of Deals
Figure 16: Amounts
other industries can expect to receive less venture capital. Once again, venture capital is more important than ever for stimulating the economy. The year 2020 is a defining time for companies seeking venture capital, and it will either be a time of growth or demise.
National Venture Capital Association 2019 Yearbook, https://nvca.org/wp-content/uploads/2019/08/NVCA-2019-Yearbook.pdf Connecticut Innovations, https://ctinnovations.com/news/connecticut-innovations-invests-39-4-in-fy-2019/
Brynn Slicer ’20 Major: Economics and National Security Studies
Hometown: Newark, Delaware
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ROADWAY INFRASTRUCTURE IN CONNECTICUT DURING THE ONGOING COVID-19 CRISIS By Austin Ferentzy
C
onnecticut’s standing as 47th in roadway infrastructure continues as we enter the first quarter of 2020. The factors contributing to this continuous grade still include roadway conditions, minor repair maintenance, and capacity. Last semester, Connecticut was graded as trending upwards toward growth and improvement in this category, and, despite the ongoing crisis regarding COVID-19, the forecasted growth is continuing as predicted. With public transport becoming increasingly nonviable for many immunocompromised, driving is the only way to ensure social distancing when it is necessary to leave self-quarantine. As with most other states, Gov. Lamont issued the “Stay Safe, Stay Home” executive order to prevent the spread of COVID-19 in Connecticut. Most nonessential businesses have closed and will remain closed indefinitely. This has had adverse effects on the economy and the lives of citizens all over the country, but it will most likely positively affect Connecticut’s infrastructure plan. The social environment the pandemic has produced has seen an almost 40-50 percent decrease in driver volume on most state roads during the week, and up to 70 percent drop on the weekends. Yankee Doodle Bridge over the Norwalk River has long been considered one of the worst bottleneck sites of the entire
highway system of Connecticut, as well as being ranked as the bridge in most need of repair in the entire state. Despite this, it has seen record-breaking lows in terms of cars travelled, dropping from 162,527 on Friday March 6, to less than half that number five weeks later on April 10, at 77,130. As part of Gov. Ned Lamont’s continued efforts to tackle Connecticut’s unique infrastructure problems, the state office has made clear it still intends to operate during the ongoing pandemic. The State Bond Commission met on April 16, and, on top of allocating more than $700 million in transportation financing, they also released the full $60 million Town Road Aid grant, which has been delayed by Gov. Lamont since last July. While the battle for tolling our state highways is still ongoing, Gov. Lamont relented in February against withholding state aid in exchange for support for electronic tolling. This is a critical step in Connecticut’s towns and cities finally having funding to make basic repairs and upkeep that many desperately need. However, this came with a foreshadowed warning from the governor to those resisting the idea of even simple tolls: “We don’t have an endless supply of money; we had to make some choices, and these were the choices we made.”
Figure 17: Traffic Monitoring Numbers for Norwalk I-95 [March 1, 2020 — April 20, 2020]
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CONNECTICUT ECONOMIC ACTIVITY REPORT • SUMMER 2020
The state’s Special Transportation Fund is projected to run until 2024, with minor surpluses, but it would only allow for a “status quo” like upkeep of current plans, if that. More than 50 percent of Connecticut’s roadways are 55 years old or older, with 80 percent of the state’s roadways consistently graded as in poor condition. In order for Connecticut to actively have funds to progressivly improve and repair, the DOT has stated the state would need to boost its annual capital investment by over 25 percent in the next 10 years and bring in more than $30 billion over the next 30 years in order to reach improvement goals. While this pandemic has not yet impacted the current plan for repair, it is important for state legislators to remain united and focus on continuing to make resources available to communities. Towns can still apply for Local Capital Improvement Program
(LoCIP) funds on a project-to-project basis, and the State Bond Commission will be continuing to meet and allocate funds for various state projects. On top of this, the reduction in volume of active drivers will make it more convenient for repair crews to work uninterrupted in areas usually plagued with traffic. Some of the projects scheduled for the upcoming months included the widening of I-84 between exits 3 and 8 in southwestern Connecticut. Regardless of what the coming months bring in terms of further social and economic changes, the state should continue to follow the projected timeline set up by the “Let’s Go CT” plan in 2016. In doing so, Connecticut will continue to positively improve the lives of its citizens, with the goal of reestablishing its identity as a thriving, organized state, something which has eluded it over the past two decades.
https://www.infrastructurereportcard.org/state-item/connecticut/ — ASCE CT Report Card 2018 https://openbudget.ct.gov/ — CT Spending & Budget Breakdown https://portal.ct.gov/ — Transportation Infrastructure Capital Plan Report 2019-2023 https://ctmirror.org/2020/04/01/ct-maintains-funds-for-transportation-port-development-amidst-pandemic/ https://ctmirror.org/2020/04/06/state-sees-shocking-drop-in-traffic/ https://portal.ct.gov/DOT/PP_SysInfo/Traffic-Monitoring
Austin Ferentzy ’20 Major: Behavioral Economics
Hometown: Easton, Connecticut
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CONNECTICUT ECONOMY
EXPERT PANEL PREDICTS AT LEAST FIVE YEARS UNTIL CONNECTICUT’S ECONOMY RECOVERS FROM THE CORONAVIRUS PANDEMIC By Hannah Providence
C
onnecticut Governor Ned Lamont has recently graced news headlines, optimistic about reopening the economy in May. “We can start thinking about how we’ll get our businesses back to business” he tells Fox News. The media echoes this notion as citizens yearn for assurance of a “return to normal,” But, even if businesses begin to reopen, a state of “normal” proves to be farther in the future. Will the Connecticut economy ever recover from the coronavirus pandemic? If so, how? When? The University of New Haven arranged for five expert economists and business professionals to help answer these looming questions. The panel consisted of two former trading partners at major banks, one professor of economics, one former CEO of a Connecticut-based global manufacturing firm, and the owner of a global consulting firm, also based in Connecticut.
Figure 18: “L-Shaped” Recovery
Four of the five panelists voted the “L-Shaped” recovery as the most probable. The trend of GDP in this case is shown below.
Figure 19: Malaise
One panelist voted the “Malaise” trend as the most probable. In this instance, once GDP declines it remains stagnant at the minimum level.
Conducting a study using the Delphi technique — an iterative research method designed to predict practical solutions with limited data — the experts were able to narrow down the trends in the economy’s output, as measured by GDP, to two possible scenarios. An “L-Shaped” recovery, in which GDP will decline drastically at first, but slowly climb back to the status quo. The majority of panelists determined this is the most probable trend and should occur over five years. The minority vote ranked the “L-Shaped” recovery as only the second most probable trend, saying that Connecticut will not be able to recover so quickly. Instead, in this scenario, GDP will more than likely continue to drift below the pre-COVID level well beyond five years. This GDP trend is titled, “Malaise.”
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The panelists defended their reasoning saying that this five-year maximum recovery could happen because of a few important factors: • Safety precautions. The promise of a vaccine in the next few years will allow citizens to feel protected when leaving their home.
• Geographical advantages. Organizations will leave New York (the state leading the U.S. in coronavirus cases and deaths) in search of a safer location that is still in close proximity. Connecticut is one of the prime locations. • Thriving service sector. Major players in Connecticut’s GDP will thrive because of the pandemic. Finance, professional, and other business services can operate remotely and are critical in recovery. Getting back to the GDP level before the pandemic will not be easy. The experts predict that Connecticut will increase taxes to make up for current expenditures. Additionally, some of the dislocations taking place in the national/global economies will also have negative effects on Connecticut. These include disruption in supply chains, severely affected sectors like travel (including airlines) and hospitality taking a longer time to get back up to speed, and the unfolding credit deterioration in the below investment grade market, which is creating strong headwinds for medium-sized companies. The pandemic may also scare citizens into a period of excessive precaution when the economy reopens, where leaving their homes and engaging in once-normal activities are fewer and farther between, especially until effective therapeutics and vaccines are discovered and made available to the general population. All of these examples are evidence of a slow climb back to recovery. However, there is a chance that CT will take longer than five years to get back on its feet, one expert points out. The state is not known for making wise decisions economically. In fact, some parts of the economy are still recovering from the 2008 market crash. So, the question is posed: if Connecticut can’t fix what happened in 2008, how will it be successful in recovering from this pandemic? COVID-19 continues to keep government officials and citizens alike on their toes. But the predictions of these experts help visualize the state of Connecticut as we journey through this pandemic — and as we recover.
To learn more about the process of the study, see below: The University of New Haven gathered five experts and identified five possible forms of economic recovery (or lack thereof) as they relate to GDP. The Delphi technique requires all opinions of the experts to remain anonymous. Because of this, experts were asked to rank the five models of GDP from least to most likely to occur and send their submissions to a facilitator with an explanation behind their rankings. The facilitator in this case was a University of New Haven economics student. Their judgments were analyzed quantitatively and qualitatively using data from both the rankings and explanations. These findings were summarized in a report that panelists had a chance to review prior to the panel discussion. In the initial round of ranking, the results were roughly evenly split among “L-Shaped,” “Malaise,” and a third scenario, “Whack-A-Mole.” The discussion gave experts a chance to defend, via Zoom, the probability of some of these models before voting again for the most likely outcome. The facilitator gathered the votes anonymously and presented the results to the group. Voting did not stop until panelists were able to reach a majority vote. This happened after the third round. It should be noted that all experts agreed the economy is unlikely to bounce back from the current slowdown quickly and in a short period of time (“V-shaped”), and, on the other extreme, equally unlikely to fall into a deep recession (“Fubar”). The other model, “Whack-A-Mole,” — deemed the third most likely event to occur — implied that GDP would recover only to drop again as the coronavirus flares up periodically over time.
Hannah Providence ’21 Major: Economics Hannah is an economics major at the University of New Haven with a minor in professional and technical writing. She is a part of the university’s Fast-Track Program and Honors Program. Hannah is a Liberty Initiative scholar, involved in research with the Economics Department at the University. Hannah currently interns for Yale University in its ITS Department’s Business and Finance Office and the University of New Haven with the Admissions Department’s Enrollment Marketing team. This summer, Hannah will be interning remotely for the Federal Reserve Bank of New York.
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CONNECTICUT JOBS
GRADUATING IN A RECESSION By Patrick Gourley, Ph.D.
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his is a difficult time for many in the labor market, but the impacts may be most acute for those who are graduating and entering the job market for the first time. A growing body of literature in the field of economics shows that those entering the job market during a recession will have significantly lower wages. More importantly, repeated studies have found that this pay decrease can last for many years. Those who graduated in 2009, for example, most likely are still feeling the impacts. All college seniors should be aware of this and make sure they understand that, even after the U.S. economy recovers, the effects on wages will be significant. One study found that a one percentage point increase in the unemployment rate at graduation corresponds to a six percent decrease in wages after one year. The persistence of this effect varies, but even studies that find relatively small effects conclude the lower wages persist for seven years. Other studies have found the effect persists for as long as 15 years. Needless to say, the total wage loss in terms of dollars adds up quickly and can easily equal the equivalent of several years of unemployment. The results are highest for those from less advantaged backgrounds, from which we draw many of our students. Also of concern is that many of these studies rely on smaller recessions than the current recession, or the Great Recession, of which data are just now becoming available. However, one of the few papers to examine Great Recession graduates found
that wages are still 7 percent lower than they would have been after three years. I suspect the effects from the current recession may be even higher. Given that the unemployment rate in 2020 is projected to double that of the Great Recession, it is crucial that graduating seniors make the most informed decisions. For those who are currently job searching and have not found gainful employment, a master’s degree, far from costly, could easily pay for itself. Students currently on the job market are potentially subjecting themselves to years, if not decades, of lower wages. I do not believe I am acting as an alarmist when I say that a portion of those who enter the job market in 2020 will never see their wages fully recover. Unlike the Great Recession, which had a slow recovery, many are projecting that, within a year, the current crisis will have abated. That means those who enter the job market in May 2021 could have vastly better labor market outcomes. All graduating seniors who have not found jobs should at the very least apply to master’s programs. Then, if a great job comes through — take it! But, if not, it would be much better to be increasing your human capital in a graduate program than remaining unemployed for months.
Altonji, Joseph G., Lisa B. Kahn, and Jamin D. Speer. “Cashier or consultant? Entry labor market conditions, field of study, and career success.” Journal of Labor Economics 34.S1 (2016): S361-S401. CoCkx, Bart. “Do youths graduating in a recession incur permanent losses?.” IZA World of Labor (2016). Davis, Steven J., and Till M. Von Wachter. “Recessions and the cost of job loss.” No. w17638. National Bureau of Economic Research (2011). Kahn, Lisa B. “The long-term labor market consequences of graduating from college in a bad economy.” Labour Economics 17.2 (2010): 303-316. Oreopoulos, Philip, Till Von Wachter, and Andrew Heisz. “The short- and long-term career effects of graduating in a recession.” American Economic Journal: Applied Economics 4.1 (2012): 1-29. Schwandt, Hannes, and Till Von Wachter. “Unlucky cohorts: Estimating the long-term effects of entering the labor market in a recession in large crosssectional data sets.” Journal of Labor Economics 37.S1 (2019): S161-S198.
Patrick Gourley, Ph.D. Assistant Professor, Pompea College of Business
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A COLLECTION FROM THE COLLECTIVE The University of New Haven Economics Collective is an online space where faculty, students, and business industry leaders can connect and network by sharing content, whether it be report analysis, political commentary, or anything else on their mind. Members can comment on each other’s posts, creating a meaningful and enriching dialogue that extends beyond the traditional classroom educational experience. In the Collective, all members are economists, whether the poster is a freshman student or a Nobel Prize winner. The lines of stature are blurred through the medium of the internet, leading to more thoughtful and genuine discussions. These moments of connectivity construct social capital, which helps build up the Economics Department as more than an office of the University of New Haven, rather making it a community of people who care for one another beyond the academic setting. The Collective has already been used as a method of surveying and will be used as such in the future to further employ the method of using the wisdom of crowds. The following titles are just a glimpse of content shared on the collective. Visit the Collective at http://unheconomicscollective.ning.com.
Supply and Demand and a Pandemic David Sacco, May 24, 2020 https://unheconomicscollective.ning.com/blog/supply-anddemand-and-a-pandemic
The Power Broker (Book Review) Patrick Gourley, Ph.D., May 21, 2020 https://unheconomicscollective.ning.com/blog/the-powerbroker-book-review
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Unemployment Rates During National Pandemic Reece Purdie, April 30, 2020 https://unheconomicscollective.ning.com/blog/unemployment-rates-during-national-pandemic
First-Quarter GDP Report and What It’ll Mean for the Year Matthew De Sando, April 28, 2020 https://unheconomicscollective.ning.com/blog/first-quartergdp-report-and-what-it-ll-mean-for-the-year
Apple for the People? Marcellus Morris, April 26, 2020 https://unheconomicscollective.ning.com/blog/apple-for-thepeople
Employment Issues Following the COVID-19 Crisis Drew Tchertchian, April 26, 2020 https://unheconomicscollective.ning.com/blog/employmentissues-following-the-covid-19-crisis
Moving Forward from COVID-19 Michael A. Blundin, April 22, 20200 https://unheconomicscollective.ning.com/blog/moving-forward-from-covid-19
World’s Second Largest Economy Shrinks Due to Coronavirus Andrew Castellano, April 19, 2020 https://unheconomicscollective.ning.com/blog/world-s-second-largest-economy-shrinks-due-to-coronavirus
ABOUT THE NEW HAVEN ECONOMIC PERFORMANCE LABORATORY The Connecticut Economic Activity Report is a publication of the Department of Economics and Business Analytics, Pompea College of Business, University of New Haven, 300 Boston Post Road, West Haven, CT 06516. www.universityofnewhaveneconlab.org
Research Staff Sara Bruckmann
Brynn Slicer
Adam Gregg
Zachary Westfahl
Austin Ferentzy
Zoe Wilkins
Michael Reddy
Executive and Technical Support Kathleen Mazzeo
Supervising Faculty and Research Directors Esin Cakan, Ph.D., Professor Claude Chereau, Ph.D., Practitioner-in-Residence Patrick Gourley, Ph.D., Assistant Professor Brian A. Marks, J.D., Ph.D., Senior Lecturer and Executive Director, Entrepreneurship and Innovation Program A. E. Rodriguez, Ph.D., Professor Kamal Upadhyaya, Ph.D., Professor
The research staff are upper-class students in the Department of Economics and Business Analytics. Although all students work under the auspices of the supervising faculty and research directors, each student is individually responsible for interpreting and analyzing the data. The Laboratory is a teaching space, and this report is a product of that space. In addition, staff members work closely with the University of New Haven Economic Collective (http://unheconomicscollective.ning.com), which brings together students, faculty, alumni, and members of the broader community to foster a meaningful and relevant exchange of ideas. A fundamental focus of the Laboratory is to formulate, construct, and examine nontraditional socioeconomic metrics applicable to the southern region of Connecticut by employing traditional empirical methods as well as data and text-mining methods. The Connecticut Economic Performance Laboratory is affiliated with the University of New Haven Department of Economics and Business Analytics. Any opinions contained herein do not reflect the opinion of the University of New Haven or its Pompea College of Business. The Laboratory and the printing of the report are funded by the Pompea College of Business, the Pompea College of Business Advisory Board, and other sponsors of the Laboratory. If you are interested in supporting this student initiative, please contact Ms. Kimberly Williams, Director of Development, University of New Haven, at kpwilliams@newhaven.edu or +1.203.923.7143.
Administrative and Editorial Staff Esin Cakan, Ph.D., Professor Michael Driscoll, MBA, Managing Editor Brian A. Marks, J.D., Ph.D., Senior Lecturer and Executive Director, Entrepreneurship and Innovation Program A.E. Rodriguez, Ph.D., Chair, Department of Economics and Business Analytics
For inquiries or questions about the Connecticut Economic Activity Report, contact: Michael Driscoll, Managing Editor mdriscoll@newhaven.edu
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Your Success Starts Here AACSB Accredited AACSB accreditation means that our Pompea College of Business has met a rigorous set of standards. Graduates from AACSB-accredited schools are recognized and generally receive higher, more competitive salaries.
About the University of New Haven The University of New Haven, founded on the Yale campus in 1920, is a private, coeducational university situated on the coast of southern New England. It’s a diverse and vibrant community of more than 7,000 students with campuses across the country and around the world. Within our colleges and schools, students immerse themselves in a transformative, career-focused education across the liberal arts and sciences, fine arts, business, healthcare and health sciences, engineering, public safety, and public service. More than 100 academic programs are offered, all grounded in a long-standing commitment to collaborative, interdisciplinary, project-based learning. At the University of New Haven, the experience of learning is both personal and pragmatic, guided by a distinguished faculty who care deeply about individual student success. As leaders in their fields, faculty provide the inspiration and recognition needed for students to fulfill their potential and succeed at whatever they choose to do.
