by Kimberly James
The economy in Connecticut has some catching up to do.
Initial figures from the U.S. Bureau of Economic Analysis show the state’s economy fell behind the rest of the nation in the second quarter of 2022.
Connecticut’s gross domestic product fell by 4.7 percent between April and June, putting the state second-to-last in the nation. Meanwhile, personal income grew by only 2.2 percent.
Dr. Steven Lanza, associate professor in residence at the University of Connecticut’s Department of Economics, told The Center Square the Federal Reserve has been increasing interest rates throughout the year in a deliberate effort to slow the economy and reduce rising inflation rates.
As a result, the U.S. economy slowed in both the first and second quarters of the year. In the second quarter, 40 states including Connecticut saw negative GDP growth.
Both the manufacturing and finance industries, two key interest-rate sectors of the economy, contributed to the 4.7 percent decrease in Connecticut’s real GDP in the second quarter, Lanza said.
“Higher rates discourage business fixed investment, which especially hurts durable goods manufacturing,” Lanza said. “Financial markets have also lost ground this year as they tend to move opposite rising interest rates. So, too, has the real estate sector, which is feeling the effects of rising mortgage rates.”
Lanza said though the figures raise questions about the state’s continued economic growth, it is important not to read too much into one quarter’s numbers. He said state-level quarterly GDP estimates are highly volatile and subject to revision. Even if the estimated contraction in Connecticut’s second quarter activity holds up in the revised data, the economy is still 1 percent larger than a year ago.
Fred Carstensen, director of Connecticut Center for Economic Analysis, agreed, saying over the longer term, Connecticut ranks 23rd nationally in GDP growth. That is a big improvement from where the state was before the COVID-19 shutdowns and might indicate the state now has a much healthier economy.
Worker shortages are only one of the factors contributing to higher rates of inflation, Lanza said.
“When firms raise wages to attract workers who are in short supply, those higher wages are passed on to consumers in the form of higher prices,” Lanza said. “But price pressure is also high due to continued supply chain shortages, post-pandemic pent-up demand, and until recently, record monetary and fiscal policy stimulus.”
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Kimberly James is a contributor to The Center Square.
Photo “Connecticut Capitol” by EGryk. CC BY-SA 4.0.
