May

Business Students Provide Economic Outlook for State of Connecticut

From left are Professor Orlowski, Adrien Viani and Kimberly Ball.

News Story: May 28, 2015

A group of 16 students from Sacred Heart University’s Jack Welch College of Business spent their spring semester working on an economic outlook for the state of Connecticut for 2015-2017. This is an annual project for the students in Professor Lucjan T. Orlowski’s economic and financial forecasting class.

Two representatives of the group, Kimberly Ball and Adrien Viani, recently presented their findings during a forum at the John and Marisa Martire Business & Communications Center at SHU. They noted that Connecticut was more severely impacted by the most recent financial crisis than many states and, as a result, Connecticut residents are not seeing the same kind of recovery that is happening elsewhere. The students examined the real Connecticut economy, structural changes to the economy, labor market developments, state budget outlook, the housing market and the financial sector of the state.

The students reported that Connecticut is also lagging behind the rest of the country when it comes to unemployment. Connecticut’s rate of 6.4 percent unemployment is above the national average of 5.5 percent and places the state 42nd in overall unemployment rankings. They noted that Connecticut has lost 12,000 and 45,000 jobs in the financial and manufacturing sectors respectively since the recession began. The private sector has been one of the few growing markets in the state. Additionally, the students reported that many of the new jobs are in low-skill, low-pay areas, indicating that while numbers show improvement, income and tax revenue growth will not increase significantly.

Regarding the housing market, the students found that prices for homes in Connecticut are close to double the national averages for comparable properties, and tax rates are prohibitively high compared to major cities in other states. They found that home ownership has plummeted from 70.5 percent in 2009 to 67.4 percent in 2014, while rental vacancy rates have steadily declined. The students predict that Connecticut’s housing market will continue to decline until prohibitive tax rates and home prices are addressed in a way to make residence in Connecticut more appealing.

When they looked at the financial sector of Connecticut’s economy, the students found that despite being home to many financial institutions, the state’s banking sector continues to lag behind the national average. The ROA for Connecticut banks during Q4 of 2014 was .93 percent, while the ROA for U.S. banks in the same time period was 1.0 percent. While Connecticut has enjoyed a higher interest margin than the national average of 3.28 percent, Connecticut’s growth of net interest has only been 1.075 percent for 2005-2014, while the U.S. banking systems’ growth of 45.79 percent during the same period completely dwarfs the state’s. Connecticut’s banks’ equity to capital ratios also remains low at 10 percent compared to the national ratio of 11 percent.

The students believe it is imperative that Connecticut’s banks add to their equity capital and increase their solvency. They believe this will make the banks less susceptible to economic shocks. “This course of action, in addition to the imminent increase in interest rates from the Federal Reserve, would result in large increases in profits, a boon to both the banking sector and the state economy as a whole due to reinvestment and asset creation.”

As young people entering the work force, the students are asking policy makers and industry leaders to recognize these issues and remedy them. The other students who participated on the project are Adria Abboud, John Brownell, Kenneth Byram, Matthew Cole, James Cooksey, Kyle Czarnecki, Anthony Dolisi, Jonathan Flood, Scott Gaffney, Vincent Iannitelli, Margaret McCabe, Raymond Satagaj, Steven Sullivan and Emma Trapani.

“This was a wonderful growth opportunity to be able to collaborate with all of my classmates on such an interesting research topic. I have gained a great deal of insight into the economic outlook for Connecticut and was able to apply the skills I learned in our forecasting class to create a cohesive, detailed analysis of whether or not the housing market in the state will rebound in the near future,” said Ball. “I thoroughly enjoyed compiling my team’s results and reviewing the findings of my other classmates for this relevant topic.”

View the full report HERE.


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