The Connecticut Economy Will Recovery Last? September 9, 2004 Rocky Hill, Connecticut Bruce Blakey Northeast Utilities

1. The “goodness” of economic news depends on who you are 1. The “goodness” of economic news depends on who you are. (Where you stand depends on where you sit.) Tight labor markets are bad for business, but good for job seekers. Higher interest rates are good for savers, bad for borrowers. “Higher oil prices are good for New Mexico, said Tom Clifford, chief economist with the state’s Taxation and Revenue Department. … If oil prices remain higher than last year, Clifford said it could be a windfall for the state.” (Roswell Daily Record 8-23-04)

2. Employment, per capita income, housing prices, etc 2. Employment, per capita income, housing prices, etc. vary greatly within Connecticut.

Unemployment Rate July 2004 3. Employment growth in Danbury and Hartford demonstrate the extremes. (Source: CT DOL) Area Employment 2004/2003 Unemployment Rate July 2004 Connecticut 0.0% 4.9% Bridgeport -0.4% 5.9% Danbury 0.7% 3.4% Hartford -1.4% 5.3% New Haven -0.2% 5.0% New London 0.1% 4.2% Stamford 2.9% Waterbury 0.6% 6.3% U.S. 1.1% 5.5%

4. Electric usage clearly indicates that economic growth has returned, but may have leveled-off. (Source: NE ISO)

5. Total jobs return to the 2000 peak in 2006. (Source: NU)

6. The annual increase of Connecticut housing prices is strong, but not unprecedented. (Source: OFHEO)

7. Residential permits remain stable and well below boom levels 7. Residential permits remain stable and well below boom levels. (Source: NU)

8. Personal income has been growing since 2002. (Source: NU)

9. Real manufacturing GSP swooned in 2001, but is growing now 9. Real manufacturing GSP swooned in 2001, but is growing now. (Source: NU)

10. The Connecticut Outlook Jobs lag income growth. (Source: NU) 2003 2004 2005 Population 0.7% 0.6% Personal Income 0.5% 2.4% 3.0% Total Employment -1.3% 1.8% Manufacturing Employment -5.5% -2.1% 0.1% Non Manufacturing Employment -0.7% 0.8% 2.0% Housing Permits 10,400 10,700 9,300

11. Even the low U.S. outlook indicates moderate growth. 2005 (Source: NU/GI) Low Base High Real GDP 2.0% 3.6% 4.3% Oil-WTI $/Barrel $40 $35 $31 Employment 0.9% 1.7% Personal Income 4.8% 5.2% 5.5%

Very Gross Annual Connecticut Impact 12. Higher energy prices are an economic drag, but overwhelmed by wealth gains. (Source: BGB) Event Very Gross Annual Connecticut Impact 10% Energy Price Change ~$150 Per Oil Heat ~$100 Per Vehicle ~$900 Million Total Median Sales Price Existing Home New Haven-Meriden Q1 2004 $13,600 Gain Per Housing Unit ~6 Billion Total One-year Change in Wilshire 5000 @ 8/27/04 ~$16 Billion Total

13. Connecticut gets fewer jobs, but they are high paying. Sources: NU, GI & NEEP 2003 Per Capita Income 2004-2006 Employment Growth Rate 2004-2006 Personal Income Growth Rate Connecticut $38,500 1.2% 4.7% New England $33,900 1.5% 5.0% U.S. Total $28,000 1.7% 5.3%

Overall Cost of Living Index Difference from I-91 Corridor 14. Our cost of living is above the national average, but low compared with New York and Boston. (Source: www.datamasters.com) Overall Cost of Living Index Index Difference from I-91 Corridor Nation 100.0 -13.4% I-91 Corridor 115.5 0.0% Hartford 106.0 -8.3% New Haven- Meriden 122.3 5.9% New York 225.3 95.0% Boston 144.0 24.6%

15. Affordable housing is a major impediment to growth. (Source: BGB)

16. Materials, services and labor which are expensive in Connecticut (+5 to +25%) dominate costs, but all costs matter. Components of Costs Manufacturing Commercial Services Materials & Services 62% 38% Labor 25% 41% Indirect Business Taxes 2% Electricity 3% Other Energy Other Costs (Sources: NY State Energy Plan, IRS & BGB) 5% 15%

17. Connecticut is competing through higher productivity demonstrated in part by KWh per worker. (Source: BGB)

18. Connecticut service jobs increase, manufacturing jobs continue to decline. (Source: NU) 000’s of Jobs 1975 2003 2014 2003-1975 2014-2003 Total 1220 1644 1820 424 177 Mfg 349 200 189 -149 -10 Non Mfg 871 1444 1631 573 187 Trade 190 257 268 67 11 Services 306 647 790 342 143 Gov’t 178 246 258 68 12

19. Medical Devices, an upcoming industry, are therapeutic and/or diagnostic devices i.e. not drugs. Surgical Artificial hips/knees Catheters Neural stimulators Coronary stents Medical lasers Pacemakers Biosensors Prosthetic limbs Imagining Systems X-ray machines Artificial organs CT Scanners Biomaterial MRIs Up & Coming: Drug-eluding stents, Implantable debrifillators, Neurostimulation devices, Nanoscale biosensors Cardiac rhythm management devices, Home & self-care technologies, Tissue-engineered components & Less-invasive hip replacements (Source: Biomedical Engineering Alliance & Consortium, The Medical Device Industry in Southern New England’s I-91 Corridor)

20. The Northeast has 28% of the nation’s medical device manufacturing workforce. (Source: BEACON)

21. The I-91 Corridor is the 17th largest metro area medical device employer. (Source: BEACON)

22. The I-91 Corridor medical device L.Q. is 1.89. (Source: BEACON) Medical Device Manufacturing Employment in U.S. Metro Areas (Top-20) LQ:

23. There are numerous medical device employers across New England 23. There are numerous medical device employers across New England. (Source: BEACON)

24. Summary Comments The national economy is growing, but employment growth is lackluster. We lag the nation with weak job growth, but high wages. The greatest risks relate to international crises and energy shocks. Connecticut can’t compete on costs, but there are highly productive industries that should be nurtured. The future hasn’t happened yet, so this forecast could be very wrong.