Economist Cautious About Connecticut, Bullish About Danbury

By Scott Benjamin

BETHEL -- Noted Connecticut economist Donald Klepper-Smith told Danbury-area business leaders that the Hat City and its suburbs continue to occupy a pronounced positive position in a state that ranks last in New England in recovering from the 2008 recession.

The Nutmeg State has recovered just 74 percent of the 119,000 jobs it lost from the economic collapse – well below the 292 percent rate in Massachusetts – which boasts the famed Route 128 corridor innovation hub – and the 183 percent rate in New Hampshire. Connecticut currently ranks 44^th nationally in job growth.

Speaking in Bethel at the Greater Danbury Chamber of Commerce’s Economic Prospects breakfast, Klepper-Smith, the chief economist for DataCore Partners in New Haven, said at the current rate of roughly 1,000 jobs added per month, it will take until at least 2019 – 11 years later – to recover all of the positions that were lost in the Great Recession.

In 1998 when the state government had a huge surplus and was distributing tax rebate checks, 83 percent of the residents surveyed in a Quinnipiac University poll felt Connecticut was moving in the right direction.

Seven years ago, Gov. Dannel Malloy (D-Stamford) said while campaigning for the office that Connecticut and Michigan were the only states with fewer jobs than in 1989.

Now, one credit ratings service said Connecticut has the highest fixed budget costs of any state and Klepper-Smith, who has keynoted the chamber’s breakfast a handful of times in recent years, reported that it has the second highest tax burden in the nation.

The economist said currently an average of 575 people are leaving Connecticut each week.

In particular, Republicans in the General Assembly, have said structural changes need to be made in the state’s pension obligations.

Pointing to a slide on the famed Laffer Curve – the broad tax cut plan popularized by University of Southern California economist Art Laffer that was used by former President Ronald Reagan – Klepper-Smith said Connecticut cannot tax its way to a robust economy.

He said “40 percent of long-term” job growth is predicated on “the cost of doing business.”

Klepper-Smith was pessimistic about Malloy’s proposal to reduce municipal aid and shift one-third of the teacher pension costs to Connecticut’s 169 towns and cities, since it will increase local taxes and stunt job growth.

However, The Atlantic has reported that Ohio Gov. John Kasich, the former Republican presidential hopeful, reduced funding for municipalities in 2011 and by the end of his first term in 2014 the Buckeye State had gone from an $8 billion projected deficit to a $2 billion surplus

Klepper-Smith said Danbury continues to “outperform” the rest of Connecticut

The Danbury metro area has had a 107 percent job recovery and has a “well-balanced regional economy,” according to Klepper-Smith, who was the chairman of former Gov. M. Jodi Rell’s (D-Brookfield) economic team from 2007 -2010.

In contrast, the Waterbury region, 30 minutes away, has only recovered 36 percent of its jobs.

Largely due to the Danbury Fair Mall, the city ranks first in Connecticut in sales tax revenue and first, per capita, in restaurants. It also has one of the few school districts in the Nutmeg state where enrollment is growing.

Nationally, Klepper-Smith said with a new and unconventional president in real estate mogul Donald Trump the economic prospects are “uncertain.” However, he said the economy may grow from Trump’s proposed tax cut and emerging free trade policy.

He said that Connecticut would probably benefit from the president’s planned increase in military spending since it ranks third in the nation in defense contracts. Over the last three years, the state has provided incentives to Pratt & Whitney in East Hartford and Lockheed Martin in Stratford to remain here for the next generation.

Klepper-Smith said there is only “a one in three chance that there will be another recession in the next 12 to 18 months.”

The economist said that due to sluggish productivity and meager middle class wage gains that will prohibit the economy from reaching the target 3 percent annual growth rate, he believes the Federal Reserve Board will increase interest rates once more this year but not twice, as has been predicted.

Washington Post economics columnist Robert Samuelson has stated the Fed’s actions could have huge consequences, since maintaining low interest rates, as has been the case over much of the last 10 years, could ignite high inflation.

On another topic, Klepper-Smith said that the nation will have to continue to adapt to a growing digital economy. ABC News recently reported that 38 percent of the current jobs could be lost in the next 15 years to robotics and automation.

Also, Bloomberg News reported last week that retail store closings were higher in early 2017 than over the same period in 2016, partly because of increased online shopping.