The slumping economy has made Connecticut’s budget front-page news: state revenues are down 20 percent from a year ago, while surging demands for public assistance have governments at all levels stretched thin. The recession raises serious questions about the nature of the slump and public policy responses to it.

What is driving the recession in Connecticut is the focus of the Summer 2009 issue of The Connecticut Economy: A University of Connecticut Quarterly Review. Articles explore the likely impact of collapsing asset prices on the state’s GDP, the size of government in the Nutmeg state relative to the other 49 states, sources of family income inequality across Connecticut, and UConn’s vexing Health Center problem. Also in this issue, guest commentaries by House Majority Leader Denise Merrill and Minority Leader Lawrence Cafero offer contrasting insights on solving the state’s budget crisis.

For free access to this and other issues of The Connecticut Economy, visit: http://cteconomy.uconn.edu/.

From CLAS News:

Connecticut’s high concentration in financial services employment now means it will face a sharp downtown in jobs and earnings, says the new issue of The Connecticut Economy , published by the Economics Department.

“Connecticut will probably be one of the hardest hit states in the country in terms of jobs lost and employment,” says Steven P. Lanza, executive editor of the quarterly magazine.

At a press conference unveiling the winter issue of the magazine, Lanza told economists and reporters that the financial services jobs, concentrated in the Bridgeport-Stamford and Hartford regions, with strengths also in the New Haven area, were “great news” when the economy was expanding.

Employment in insurance, securities, banking, and hedge fund businesses offered some of the highest paying jobs, benefiting the state in good times.

But the financial services industry it not only concentrated in Connecticut; it has a particularly high “job multiplier” effect. Financial services here measures 7.1 on the Location Quotient scale (anything above 1.0 shows more specialization in an industry than in the U.S. as a whole), and it spins off a large number of jobs and higher incomes for others in the region, too.

In good times, LQs greater than 1.0 “serve as engines of economic growth,” The Connecticut Economy reports.

When the engine sputters, however, the growth it stimulated grinds to a halt, too.

Job declines in the state are projected at nearly 4 percent, and earnings declines at nearly 3 percent, Lanza wrote, leading to tax revenue reductions, too.

More than 40,000 jobs in the state could be at risk, according to the magazine’s quarterly forecast. That number could double, under certain scenarios.

The magazine is forecasting unemployment topping 7 percent in the Bridgeport-Stamford region, 8 percent by this time next year in the Hartford region, and 7 percent in Norwich-New London in 2009.

If the slump extends through the next fiscal year, the magazine reported, the state’s budget gap could exceed $2 billion. Some estimates run three times that over the next two budget years, Lanza said.

The recovery may not come until after 2010, wrote Daniel W. Kennedy, senior economist with the Connecticut Department of Labor, Office of Research, who manages the magazine’s economic forecast.

“With the stakes do high, no state should be rooting more loudly for the success of the financial industry rescue package than Connecticut, or praying more earnestly for a merciful end to the current business cycle,” Lanza wrote in the issue’s lead article.

For more on the latest issue, go to http://cteconomy.uconn.edu/

To hear a podcast of Steven Lanza talking about the latest issue, click here.