Dan Haar: Connecticut’s economy is poised to take off in 2025 — or stumble. Here’s what to know

CT Insider – Friday, January 3, 2025
By Dan Haar

If you’re considering buying a house in Connecticut, or maybe you’re reading this in Arkansas as you weigh a job offer in Shelton, or you’re thinking about quitting your job to open a restaurant in Norwalk — you want to know where the state’s economy is headed in 2025.

Here is the answer based on the numbers: It’s poised for solid growth. Or, it’s heading in a downward trajectory.

Which one is right? Probably the answer is somewhere in between as we head into the new year. But there’s a reasonable argument in both directions depending on which trends you prefer.

“Overall, I think the trend lines are constructive and support continued investment and continuing growth,” said Daniel O’Keefe, commissioner of the state Department of Economic and Community Development. “The biggest impediment to Connecticut’s economy has been our own skepticism. And I understand why that skepticism exists.”

O’Keefe, a longtime technology investor before he took the job as Gov. Ned Lamont’s chief strategist and salesman for the Connecticut economy, is looking at a strong housing market — high prices torment would-be buyers but they’re proof people want to be here — and he’s looking at solid tax collection numbers.

He’s also looking at overall growth of the state’s economy since the pandemic, which is much improved from before; and he sees a recent record of consistent, if slow, population growth.

“Our population has gone up every year since the pandemic. No other state in our region can claim that,” O’Keefe told me this week, including the latest report from the census.

Unemployment was at a near-record low of 3% in November compared with 4.2% for the nation.

“What I actually see are reasons for optimism,” O’Keefe added, citing Connecticut’s rank as the 19th fastest growing state in overall economic activity in the two years following the pandemic, compared with, famously, our bottom-of-the-pack (No. 49) performance before the COVID-19 shutdown.

It’s true that Connecticut has lost more residents moving to other states than have moved here, with a brief exception during and immediately after the pandemic when we saw an influx. That’s true of most northeastern states because of retirements to the South, among other reasons.

But the exodus has slowed significantly and is now close to or even with the net departures, even as New York, Massachusetts and New Jersey continue to lose tens of thousands of residents to other states more than they gain.

A blip or a scary slowdown?

Let’s look at the dour view. Overall economic growth and job creation have slowed over the last 18 months even more than the national picture.

The total number of jobs based in Connecticut grew by 3.2% in the 18 months from December 2021 to June 2023, compared with 4.2% in the nation. That’s not bad for this state. In fact, we don’t want to match the nation in adding jobs because we don’t have the roads, schools, land and developed cities to support it.

But from June 2023 to November 2024, the latest numbers available, Connecticut jobs grew by a total of just 0.4%. That compares with 2.1% for the nation. If those numbers hold up in the revisions due in March — which can be dramatic, up or down — it will mean Connecticut has seen a significant slowdown compared with the nation.

More worrisome news: The total number of residents working or looking for work in Connecticut, known as the labor force, was down by 26,000 in 2024 compared with 2019, based on monthly averages. The U.S. total is flat. And as for tax collections, Connecticut’s performance since June remains good but its growth is down from the previous three fiscal years.

Connecticut, for decades the richest state based on per-capita income, ceded that honor to Massachusetts in 2021. The two states were in a virtual tie in 2023, the latest year available. We’re still No. 1 in income after taxes, but those numbers tell us more about how the very rich are doing than about typical families.

The only question that matters, of course, is where we’re heading, not where we’ve been. That picture is also mixed, as the bioscience cluster in and around New Haven shows signs of life (no pun intended); defense and aerospace, the bulk of Connecticut’s manufacturing base, is flying high and making a splash (puns intended) especially at Electric Boat, the submarine-maker in Groton; and the insurance and wealth management sectors are holding up, the latter more than the former.

Jobs remain plentiful for now and the challenge is filling them. But unlike in the past, when the defense, insurance and banking industries were enough to keep the state on top, Connecticut has no large-scale engine of growth and no magnet cities to attract young professionals — although Stamford and New Haven are doing what they can with their small size.

“Connecticut was very lucky for a very long time, but lucky is not a strategy — and Connecticut doesn’t have the assets or the location to deliver luck now,” University of Connecticut economist Fred V. Cartsensen said in an email. “Its ‘steady habit’ of not investing in itself is generating a long, slow, but entirely predictable relative decline.”

‘Lamont is walking backwards’

The lack of robust investment in technology and universities hurts the state, Carstensen, an economic historian and director of the Connecticut Center for Economic Analysis at UConn, has argued for years. And it’s not getting better these days, with budget pressures that will explode in a full-fledged battle between Democrats and Democrats in the legislative session starting Wednesday at the Capitol.

“I see no evidence of any interest by the governor or the Legislature in reversing that decline,” Carstensen said. “Lamont is walking backwards, focused on the past; he isn’t looking forward, assessing where we are headed.”

He sees an irony: Lamont, investing heavily in paying down the underfunded state employee pensions to make up for mistakes of the past, is in Carstensen’s view “doubling down” on the mistake of the present. We should spend much more on IT infrastructure to support artificial intelligence, on higher education access and research capacity, in his view. New York and Massachusetts are doing all that, he said.

Lamont and O’Keefe disagree strongly and say they, and the state, are making the investments Connecticut needs. Lamont, a Democrat, says an overall budget increase of close to 5%, the amount he will most likely propose in February, within the state spending limits, is enough. Republicans agree.

As for the outlook, critics such as Carstensen are looking at Connecticut’s decline from the ’90s until the pandemic, O’Keefe said, not the turnaround after 2020.

“The pandemic, while none of us wanted it, was the slap to the face our economic system required,” he said.

“What I see is a case and the causes for optimism,” O’Keefe added in response to Carstensen’s criticism. “Can we do more? Yes. Should we be doing more? Yes. Will we do more? Absolutely. … But now is a great time to be taking a bet on Connecticut.”

That’s the debate heading into 2025. I’m in the middle on this one, neither wildly optimistic nor dour. We don’t want another lost decade like we had from 2010 to 2019, but for my tax dollars, slower growth beats uncontrolled growth.

We will explore this debate from several angles in 2025, as it will define the Connecticut of 2050, after a lot of us are gone.

Dan Haar is columnist and senior editor at Hearst Connecticut Media Group, writing about the intersection of business, public policy and politics and how the issues affect the people of Connecticut.

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