Connecticut’s economy grew faster than the national economy in the July-to-September quarter, led by a strong recovery in the state’s extensive finance and insurance industry, the U.S. Commerce Department reported Thursday.
The state’s $299.8 billion economy expanded at a 2.7% annual rate in the third quarter as the U.S economy grew by 2.3%. Connecticut’s growth rate placed it No. 15 among the states, an unusually high ranking. It ranked No. 29 in the second quarter.
The state’s finance, insurance and real estate sector has “been a stellar performer,” economist Donald Klepper-Smith said. “It’s been what’s keeping Connecticut above water.”
“These are engines of economic growth that are helping Connecticut at a crucial point in the business cycle,” he said.
The chief beneficiaries are businesses and workers in Hartford, the center of much of the state’s insurance industry, and Fairfield County, home to Wall Street brokers and others in the financial industry, Klepper-Smith said.
Connecticut’s economy was the second largest in New England, after Massachusetts, with a $637.4 billion economy that expanded much faster, at a 3.7% rate, placing it No. 3 in the U.S.
New Hampshire’s $94.3 billion economy contracted by 3.3%, the only state economy in the region to shrink and placing it No. 49. Vermont turned in an anemic 0.4% rate of growth, Maine had a 1.7% growth rate and Rhode Island’s economy expanded by 2.2%.
Economic growth expanded in 37 states and Washington, D.C., in the third quarter, the Commerce Department reported. The percent change ranged from 6% in Hawaii to –3.3% in New Hampshire and North Dakota.
The data reflect continued economic impacts related to the COVID-19 pandemic, the federal agency said.
Connecticut’s economic growth picked up speed relative to the U.S. economy. It ran ahead of the nation in the third quarter while it trailed in the second quarter.
‘We’re running faster than the pack but the pack is way in front of us,” said Fred Carstensen, professor of finance and economics at the University of Connecticut.. “It’s a good number. Delighted to see it. But I’m skeptical we turned the corner.”
Connecticut’s challenge will be to keep the economic growth going, he said.
“This is nice to see,” he said. “Let’s hope it’s a trend and not a one-off blip. Let’s be patient.”
Many sectors of Connecticut’s economy shrank in the third quarter: utilities, construction, wholesale and retail trade and government. Durable goods manufacturing — furniture, appliances and machinery — shrank, while nondurable manufacturing — clothing and shoes, textiles and chemicals — expanded.
More sectors expanded than contracted. They included health care, education and professional, technical and scientific services. Finance and insurance, posted the biggest growth.
Finance and insurance increased 7.8% nationally and contributed to increases in all 50 states and Washington, D.C. The industry was the leading contributor to economic expansion in 13 states, the Department of Commerce said.
The National Association of Insurance Commissioners said in its 2020 Profitability Report released Wednesday that total premiums earned increased for the 11th consecutive year while losses incurred and loss adjustment expenses remained relatively flat.
Peter Kochenburger, executive director of the Insurance Law Program at the UConn School of Law, said other factors contributing to the industry’s strength are successful efforts fighting lawsuits by businesses seeking compensation for pandemic-related shutdowns and the booming stock market.
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Insurers still face challenges such as an increasing number of destructive storms due to climate change, but overall, the industry has “done well and weathered better than predicted a year and a half ago,” Kochenburger said.
Carstensen said economists and policymakers will be looking to see if economic growth will “translate into a recovery of quality jobs.” Connecticut has been losing high-wage jobs that have been replaced by lower-paid employment for more than a decade, he said.
Employers added jobs every month this year as the labor force recovers from steep losses caused by business shutdowns at the start of the pandemic in March and April 2020. But government pandemic assistance payments to households and business decreased, raising questions about continued economic growth as federal assistance is cut, Klepper-Smith said.
Carstensen credited developments this year as good beginnings. Legislation establishing incentives to draw data centers was enacted by the General Assembly and Gov. Ned Lamont, but none so far are under contract, he said. Several companies are relocating headquarters to Fairfield County and Connecticut’s biotech industry gives the state bragging rights.
“The big picture doesn’t look like there’s much change yet,” Carstensen said. “Our trajectory still looks pretty weak.”
Stephen Singer can be reached at [email protected]