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Raring to Go: The Economy in 2012

Key indices point in the right direction. But the glass is still half empty, or half full.

The economy is like a racehorse at the gate, raring to go. Or as Patrick J. Flaherty, an economist at the Connecticut Department of Labor puts it, everything is in place for takeoff. Except that the economy hasn’t taken off yet. 

The good news is that pockets of strength continue to emerge, as reflected by the national unemployment rate, which dropped to 8.6 percent in November — down from 9 percent in October — the lowest it’s been since March 2009. The unemployment rate in Connecticut was 8.7 percent in October, the latest month for which data is available. Whether this will hold steady into the coming year is anybody’s guess.

Another vital measure, household debt, has shrunk steadily for 12 financial quarters. According to data from the U.S. Federal Reserve, total consumer debt, which peaked at $13.8 trillion in 2008, declined by 8.6 percent in the first half of this fiscal year.

What’s more is that American corporations are sitting on a pile of greenbacks. According to a report from Moody’s in July of this year, 1,647 companies rated by the agency had a combined $1.2 trillion in cash at the end of 2010, up by 11 percent from the previous year.

All this household and business money is waiting to be spent.

Closer to home, the bipartisan jobs bill that was passed in October by the Connecticut legislature will put a large share of $626 million in state borrowing in the hands of small businesses across the state. If this money reaches businesses that are sure to succeed, we are paving the way for regional recovery in 2012. Heads of several small businesses primarily in the technology area are telling me that they have increased their employee base in the last year and will continue to hire in the coming year. But this only in pockets.

More of the good stuff: Regional banks are flush with cash to lend.

Yet none of this negates the fact that the economy is still on rocky terrain, and will remain so until further deleveraging by households takes place and the housing market continues to recover. Consumer spending, coupled with companies investing in business innovation and expansion, is what will spur growth, going forward. But most important is what happens to the economy at the national level.

As Patrick pointed out, Connecticut has so far mirrored the national statistics. So any positive change at the national level will be good news for our state. That means the Gross Domestic Product (GDP) must inch its way upward for businesses to create jobs. In other words, he said, Connecticut would sink or swim with the national economy.

Steven P. Lanza, an economist at the University of Connecticut and executive editor of the quarterly publication Connecticut Economy, told me that we’ve seen 800 jobs added on average per quarter in Connecticut because the U.S. GDP growth is around 2 percent. But we’d need at least 3 percent GDP growth to spur the kind of job growth that is required for recovery.

Steven and many other economists are hoping that the housing market will bottom out next year, paving the way for revival.

The other issue — which Steven raises — is the ongoing impact of Gov. Dannel Malloy’s tax increases and spending cuts on the state’s budget.

One thing we need to be mindful of is how the state is spending taxpayer and bond money to boost the economy.

During a recent meeting with Matthew Nemerson, president and CEO of the Connecticut Technology Council in East Hartford, I discussed the issue of accountability of state spending.

Matthew rightly pointed out that state money simply cannot go to businesses that think they should have it; otherwise the funds will burn up quickly with little to show.

The council, according to Matthew, has identified methods to ensure accountability of monetary assistance by collating data from surveys.

One such process is to divide small businesses into three groups: Businesses that will succeed because of their leadership, idea, and execution strategy. Businesses that are expected to succeed but are failing. And businesses that will most probably fail.

He said the first two groups don’t show up very much on surveys because they are too busy succeeding and growing, or too busy figuring out how to succeed.

“The state should identify these businesses and invest its resources in the first two groups to see returns,” Nemerson pointed out.

Much hinges on the tone of public policy, and whether or not it creates an environment conducive to both consumers and businesses to invest in the future. A lot of it comes down to confidence.

Maria Giannuzzi December 14, 2011 at 04:10 PM
An interesting comment about 2012. It does seem that Europe and the United States are headed for some painful truths, despite efforts by our governments to bail water from our sinking economies. Some sectors of our economies will recover, but that still leaves millions of individuals either going over or on the edge of the financial abyss. We need to understand that it is only government programs (including tax credits and deductions) that are keeping millions from real poverty. Our government leaders, at all levels, federal, state and local, who look at the statistics understand this. There is a quote from Theodore Roethke that may apply, "In a dark time, the eye begins to see." The year 2012 may be a watershed year, in which many more Americans experience a change in consciousness, when they truly begin to see reality for the first time. When they begin to see that non-economic values should guide our way of living.
Andrew Ziemba December 15, 2011 at 02:57 AM
I don't think in my wildest dreams I could possibly create a more biased, leftist, keynesian article filled with misinformation which is backed by conjured government statistics to fool dumb people into digging their own grave financially so that those in control can gain from them. I wouldn't trust a word the Federal Reserve has to say. Just Incase anyone reading this article does not know better (ignorance is bliss) the federal reserve is YOUR MASTER and you are A SLAVE to it. It is neither federal NOR does it have reserves. Secondly, have we learned nothing from the bailouts? This Nemerson guy is talking about how the state should be using tax dollars to pick winners and losers. SERIOUSLY? I can't possibly imagine how anyone could support such behavior (unless they were the one on the receiving end). I suppose I do know the answer as to why someone could have such clueless ideas though. Education in this country, particularly at the college level is absolutely terrible. What do you expect though, when everyone wants a college degree? They have to make it really easy, senseless, and worthless so that the 90% that DONT BELONG can graduate!
Maria Giannuzzi December 15, 2011 at 01:19 PM
If accurate, the data about the decline in household debt is interesting. ("Another vital measure, household debt, has shrunk steadily for 12 financial quarters. According to data from the U.S. Federal Reserve, total consumer debt, which peaked at $13.8 trillion in 2008, declined by 8.6 percent in the first half of this fiscal year.") Does it mean that people are less willing to spend money they don't have on things they don't need? Or that people do not have confidence in our economy and are paying down their debt so they can hang on to (and invest in) things that really matter (their home, an education for their kids). It is a significant change in consumer behavior, which may signal a change in awareness (consciousness) by at least some of our population. Andrew, I wish you would also complain about all the large corporations with huge profits who get federal tax incentives and deductions. It doesn't appear that the contest is between winners and losers. Sounds like the winners are picked to be even bigger winners. Because it is the winners who are able to contribute millions in campaign contributions to the politicians.
Andrew Ziemba December 15, 2011 at 07:27 PM
I'm always happy to complain about large corporations. Corporate lobbying is one of the biggest problems facing this country. An even bigger problem though, is how the government subsidizes some, punishes others, over regulates some, under regulates other, and outright makes some illegal (internet poker most notably). Any data coming from the federal reserve is worth about as much as the federal reserve note that we as a people still call "a dollar". COOKED books for CROOKED businessmen and CROOKED mainstream media clowns to spew out loud for all the sheeple to hear. Our country is broke. We are the greatest DEBTOR nation in the history of mankind. We have a fiat monetary system which is all backed by absolutely NOTHING. Our economy is NOT recovering and it WILL not recover no matter. If the Federal Reserve gave us all ONE MILLION DOLLAR CHECKS to go out and spend on whatever we wanted would that solve anything? Keynesian economists would have you believe so. This would lead to massive inflation and massive inflation leads to massive suffering. The USA will NEVER pay off its debt. It will PRINT its way out of its debt just like all countries before it have ever done. EITHER THAT OR WE GET WW3. Our fate rests with the vote of our citizens in 2012. RON PAUL 2012
Sujata Srinivasan December 18, 2011 at 04:04 PM
Interesting discussion. True, a fall in the unemployment rate does not indicate future recovery unless it occurs in conjunction with other factors lining up such as housing market recovery, continued deleveraging of consumer debt (we are seeing this), and corporate and household spending in the economy (corporations are sitting on a pile of cash waiting to be spent and the Thanksgiving weekend sales showed positive numbers, though baby steps and too early to say if the trend will continue). Whether or not it's the government's business to be in business is a political ideology. We are going to see a lot of this ideology play out in the coming election year. But the fact is at the state level, the legislature passed a bipartisan jobs bill (with overwhelming majority in both House and Senate) that is making funding available to small businesses in Connecticut. At this point, it's crucial to ensure that there is accountability and transparency in the way the funding is dispersed, and in a manner that ensures maximum returns on public money. I agree that the system is far from perfect. But we've got to try and make it work as best as we can.

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