Expert: Forecast calls for inflation, 50-50 chance of recession
DANBURY — With the spirit of a seasoned weatherman trying to stay upbeat about a foreboding forecast, a veteran New Haven economist told a group of Danbury-area business leaders to expect more inflation and a 50 percent chance of recession over the next year.
“Tough times don't last, tough people do – we will see recovery,” said Donald Klepper-Smith during a videoconference at the Greater Danbury Chamber of Commerce. “The odds of a recession are 50-50; another way of saying that is we have a 50 percent chance of getting away with slower growth.”
Klepper-Smith said his optimism is tempered by increasing inflation, deteriorating consumer confidence, surging oil prices and the Russian invasion of Ukraine.
“There is a lot of concern about where we go from here,” Klepper-Smith said during a 45-minute presentation. “We're facing a recession headwind as we head into 2022.”
Inflation refers to the rising cost of gas, food and essential services reducing the purchasing power of everyday Americans, even after wage increases are factored. A recession is a period of depressed economic activity with high rates of unemployment. The most recent recession occurred during the outbreak of the coronavirus crisis in the spring of 2020.
One of the bright spots in Klepper-Smith's forecast was the Danbury-area economy, which continues to add jobs and lead the state with the lowest unemployment rate of 3.8 percent. The Danbury Labor Market Area, which includes Bethel, Brookfield, Bridgewater, New Fairfield, New Milford, Newtown, and Sherman, has added 12,500 jobs since the recession began in April 2020, he said.
In contrast, KlepperSmith said the darkest clouds hang over Hartford and a state government he called “dysfunctional” and “antagonistic” toward businesses in Connecticut.
“Connecticut ranks 47th in the U.S. in terms of business climate based on corporate taxes, income taxes and sales tax,” said Klepper-Smith, who was chairman of Gov. Jodi Rell's Economic Advisory Council from 2007 to 2010. “Looking at how the state legislature disrespects the business community, there is a lack of appreciation for what the business community brings in terms of jobs and economic vitality, and this has to change.”
Part of the problem, the economist said, is that the state's fiscal situation is strong while its economy is languishing.
“The fiscal situation is healthy only because Connecticut has a rich uncle — Uncle Sam,” Klepper-Smith said. “Connecticut is benefiting from federal fiscal stimulus money, and my concern is the degree to which federal funds get imbedded in wages, Connecticut taxpayers will be on the hook for future wage gains.”
Klepper-Smith added that the wave of families and businesses that has flooded into greater Danbury and Fairfield County from nearby New York because of the pandemic is unlikely to last through the year.
“Why not?” asked P.J. Prunty, the president and CEO of the Danbury chamber, relaying a question from a videoconferencing participant.
“It goes back to the antagonistic business environment in Connecticut — there is incentive for business to move out of the state and less incentive for businesses to create jobs,” Klepper-Smith said. “Much of that (migration from New York) has already taken place and should slow in 2022.”
The expert's main concern is inflation, which is at 8 percent.
“The U.S. economy is being aided by an unprecedented amount of monetary and fiscal stimulus…and there is little fiscal discipline at the local, state and federal level,” Klepper-Smith said. “There is inflation in the pipeline and these inflationary pressures are not going to be abated anytime soon.”