Personal income in Connecticut grew 3.7 percent between the fourth quarter of 2013 and the fourth quarter of 2014, while most of the rest of the Northeast saw more sizable gains, according to a report out this week.
Connecticut’s growth outpaced New Jersey’s 3.4 percent increase and Maine’s 3.1 percent gain, but every other state in the region — Massachusetts, Rhode Island, Vermont, New Hampshire, New York, and Pennsylvania — saw personal income grow by more than 4 percent last year, according to Wells Fargo Securities’ 2015 Economic Outlook for the region.
The economy remains difficult in many parts of the country, but the Northeast and Connecticut have had a particularly hard time recovering from the most recent downturn that began in late 2007, according to the report, and challenges persist.
One hurdle is the employment situation here.
Connecticut, for instance, attributes nearly 8 percent of its overall employment to the financial services sector, according to the report. The sector’s presence is larger here than in other states; nationwide, the sector accounts for 5.7 percent of total employment.
While the sector has been a strong point for Connecticut in the past, it presented challenges in 2014. Job growth in the financial industries nationally has lagged overall employment growth.
Compounding that problem, “The industry is now even more centered in New York City and Boston, which has largely come at the expense of neighboring areas in New Jersey and Connecticut,” the report says.
“The financial sector has not provided as much of a lift to Connecticut’s economy as it has in the past,” said Mark Vitner, senior economist at Wells Fargo.
“The manufacturing sector has been somewhat sluggish,” as well, he said, with some Connecticut companies opting to expand outside the state in places like Florida.
“In terms of (overall) job growth, we’re lagging the nation,” Vitner said. “And we still have some issues with under-employment” in Connecticut.
Employment in the insurance sector, once the state’s leading industry, was flat in 2014, while hedge funds and private equity firms were “a notable bright spot,” according to the report.
There has been promising job growth in two sectors — professional business services, and education/health — which include some high-paying jobs that positively impact personal income in the state, Vitner said.
Throughout the region, all of the Northeast states have seen employment grow more slowly than the national average, which is typical. Over the past 50 years, when economic expansions have occurred, they usually have been stronger in other parts of the country than in the Northeast, according to the report.
“The plus side of the most recent business cycle is that the downturn that began at the end of 2007 was harsher nationwide than it was in the region,” the report says.
Massachusetts had the strongest job growth in the region last year, followed by New York, according to the report. Both were bolstered by the concentration of technology firms they have, the report said.
Despite some challenges on the job front, Connecticut and the region have several factors working in their favor when it comes to buoying personal income. One is an aging population, in which people tend to have more savings and investment earnings, bolstering income, according to the report.
The region’s income also managed to largely hold its own, even as job and population gains have slowed, the report says because “the region’s higher costs of doing business tend to discourage lower value-added jobs, which results in stronger income growth.”
Looking ahead, economic indicators show Connecticut faces some problematic trends. The state’s population decreased last year and “there was substantial outmigration from the state,” according to the report.
“The state’s older population and higher cost of living tend to discourage young people from moving into the state,” it says.
If 2014 trends continue, the housing market also could be problematic, according to the report, which says home prices fell 0.9 percent last year and “remain near cycle lows.”
New-home construction in Connecticut has lagged behind activity nationwide, with the exception of multifamily houses, the report says. But home sales rose 2.4 percent last year and continued gains in sales should lead to higher prices and, subsequently, more construction.
Vitner said there are some causes for optimism even amid the difficult economy.
“The outlook for Connecticut is better than it’s been in quite some time,” he said. “We’ve moved past the financial crisis, we’re seeing that real estate is stabilizing, we’re adding jobs. (But) we still have some issues to deal with.”