What will it take for Connecticut’s economy to endure the recession?

Unemployment in Connecticut has ticked up slightly, from 8.8 percent in December

to 9 percent in January. However, in a sign of recovery, employers in Connecticut added 2,300 jobs by the end of January. But what do these numbers mean to the state’s work force and small businesses fighting for their financial survival? Is Connecticut’s economy turning the corner?

Tribuna sat down with Dr. Allen D. Morton, dean of the Ancell School of Business at Western Connecticut State University, to clarify the economic picture.

Dr. Morton holds a bachelor in economics from Harvard College, an MBA in finance from the Wharton School at the University of Pennsylvania, and a doctorate of professional studies in economics and finance from Pace University.

Tribuna: Are the new unemployment numbers good news or bad? Could the increase of the state’s jobless rate have been worse?

Dr. Allen D. Morton, Dean of the Ancell School of Business at Western Connecticut State University Morton: Good or bad news related to job increases and economic growth is relative and depends on many factors, including the nature of economic surveys and comparisons to prior recessions.

The State Labor Department estimates that Connecticut lost 101,000 jobs during the current recession. In contrast, Connecticut lost approximately 160,000 jobs during the recession that lasted from 1989 to 1992. Given the fact that many economists are predicting that job losses will bottom out in mid to late 2010, the current unemployment is bad, although not as bad as other recessions in state history.

T: Is it possible that with the economy improving we may see the unemployment rate increase as more people re-enter the workforce looking for work? M: Changes in the unemployment rate don’t always correspond to positive changes in the economy for a few reasons. First, unemployment is a lagging indicator, often improving after the economy, since employers often expand output by increasing available work hours first rather than hiring additional new workers. Additional workers are usually hired only once employers feel confident that an economic recovery is strong enough to warrant hiring.

Second, changes in the unemployment rate depend on the relationship between the rates of growth in productivity, output and the labor force. This is something you learn in a finance class at Western:

If the rate of growth of productivity is zero, the unemployment rate will increase if the rate of growth of output is less than the rate of growth in the labor force. On the other hand, the unemployment rate will decrease if growth rate for output exceeds the sum of the growth rates for productivity and the labor force.

T: In 2009, the United States experienced the largest contraction in bank lending since 1942. That might not be a problem for big companies, which can borrow on bond markets, but most small businesses have nowhere to go but the local bank. What might that mean for the recovery?

M: The economic recovery will be slowed until small business confidence and borrowing capacities and willingness to borrow improve. According to the National Federation of Independent businesses, small businesses currently feel less confident about the economy than they did during the recession of the late 1990s. This less-than-optimistic economic outlook leads to reluctance to make commitments in the area of hiring and borrowing – and it must be overcome in order for small businesses to contribute to the economic recovery in a meaningful way. The need to create a positive business climate in Connecticut is profound, since 80 percent of the businesses in Connecticut employ 20 or fewer employees.

T: Why did this recession hit small businesses so hard?

M: Several factors, including reduced bank lending and lower consumer confidence, contributed to a less favorable business climate for small businesses, as is the case with all recessions. However, small businesses have experienced greater job losses than in prior recessions.

According to the National Federation of Independent Businesses, job losses among small businesses accounted for 45 percent of all jobs lost in the current recession. During the 2001 recession, job losses among small busi- nesses accounted for only 9 percent of all jobs lost during the recession. Finally, as the Wall Street Journal points out, small businesses are less likely than larger businesses to participate in the export market, and are therefore not experiencing increased business to growing economies, such as Brazil, India and China.

T: In your opinion, what will it take for the state’s economy to turn the corner?

M: The road to economic recovery begins with creating a business climate that lessens fear and uncertainty. Concrete steps, such as resolving or ameliorating the state budget crisis will lead to this improved climate, as will an increase in available credit and public private partnerships that can recommend business strategies and practices for meaningful and sustainable economic growth. In short, economic and business growth must become a prio-rity in Connecticut.

Small businesses can also prepare for their own economic recovery. The recession has changed the rules of the game, and small businesses should strive to become more competitive and more efficient. Customers are sa-ving more and spending less following the financial meltdown and need to be convinced that businesses are delive-ring outstanding value that addresses their needs; otherwise, they will take their business elsewhere. In addition, as the current recession shows, businesses should evaluate the merits of doing business abroad in order to seek additional markets and opportunities for growth.

Finally, small businesses might want to make use of the expertise that abounds in the state’s colleges and universities in order to acquire insights into the best practices in business management.