The new normal? By Luther Turmelle

New Haven-area economy may be headed for a turning point

It has been nearly a year since the indicators that make up the New Haven Register’s Economic Scorecard have looked this bad.

Last January, five of the eight economic indicators that make up the scorecard were headed in a negative direction. And now, the December data for the New Haven area is headed in the same direction.

The question is: Will it continue?

Economist Donald KlepperSmith, author of the scorecard, thinks so.

Klepper-Smith, who is chief economist and director of research for New Haven-based DataCore Partners, said the New Haven area “is headed for a new economic normal.”

“We’re probably approaching a turning point in our economy,” he said. “The average business cycle, going back to World War II, is five years. The cycle we’re in right now is at eight years.”

Rising interest rates play a key role in Klepper-Smith’s prediction.

“Rising interest rates are great for savers, but they’re not great for consumers or people who want to borrow,” he said. “We’ve been living on cheap money for a long, long time. Consumers are going to have a large say in where this economy is headed going forward.”

That’s potentially bad news for the two housing indicators that are in the scorecard.

Housing starts, which, for the purposes of the scorecard, encompasses 12 New Haven-area towns, were down in December. So was the median sale price for existing single-family homes, which lost $2,500 in value compared to December 2016.

“When home prices decline, homeowners feel less wealthy,” Klepper-Smith said. And when consumers feel less flush economically, that has an impact on consumer spending power, he said.

“Right now, consumer spending power is negligible,” KlepperSmith said. “When you have stronger spending power, you get that extra dinner out or feel comfortable going for a weekend in Rhode Island.”

Two of the three economic indicators that were headed in a positive direction in December were employment related. Total employment increased by 2,900 jobs compared to December 2016 while the area’s labor force increased by 2,300.

But Klepper-Smith noted that even within those positive indicators, there are negative that are hidden.

“We’re looking at labor shortages in many areas of the economy,” he said.

A Connecticut Business & Industry Association survey released last week showed manufacturers represented 62 percent of those companies expecting to add employees in 2018.

Sixty percent of the companies that responded to the survey want to hire workers within the next three months. But nearly one-half of the companies looking to hire new employees were unable to find qualified workers to fill those positions.

“Companies want to hire more,” said Pete Gioia, an economist with CBIA. “While we heard again about unfilled manufacturing jobs, we also heard up to 80 different job titles that were yet to be filled.”