The weather outside is frightful…let it snow, let it snow” Weather Report: For most of the 1st Quarter of 2015, the weather outside was “frightful”. It was a record setting winter season that included such notables as 110.3 inches of snow (and counting) for Boston, 28 consecutive days with a low of 20 degrees F or lower (Jan. 25-Feb 21) and a number of other daily, weekly broken winter records for various municipalities in the region. So when the various economic reports were released with information that real estate, construction and the hospitality sectors were off in the beginning of the year, most New Englanders had an “oh really” moment as if the past two and half months were being compared to say similar market sectors in Guam, Hawaii, Florida or perhaps the US Virgin Islands – places where the only ice is floating in a glass of colorful liquids supporting miniature umbrellas, not causing collapsed roofs. How much the weather economically impacted the region will be difficult, and likely contentious, to measure. But the number of cancellations, closures, delays and hours lost due to storm related problems were enormous. Added to the “downstream totals” were the direct costs like sand and salt along with snow removal and other mitigations. Finally as the winter storms recede, the real costs of repairs are now emerging with the spring melt. Massachusetts is in the process of approving a $30 million “pothole” bill to help deal with the infrastructure damage – including potholes that seem of car swallowing proportions and that are too numerous to count, although Boston through early March had filled 2,100. At this writing, Massachusetts has applied for a federal disaster declaration to help ease the financial burden of what state officials estimate is $400 million in snow removal costs and other damage. Northeast Economic Performance The Atlantic Northeast of which the New England market is central [New York City and New Jersey are for the purposes of this article considered supporting but separate] have been lagging behind the US in terms of state GDP growth but by other measures are among the top regions in economic performance. In January, Yolanda Kodrzycki, Vice President and Director NEPPC (New England Public Policy Center) Federal Reserve Bank, gave an economic briefing in New Hampshire on “Economic Conditions in New England and the Nation.” The salient point in Yolanda Kodrzycki’s analysis is that New England recovered more slowly from the 2008 crash than the US as a whole. Kodrzycki writes, “None of the New England states kept pace with US job growth in 2014,” adding, “US exports have continued to grow, but NE exports have remained stagnant since 2011.” However, on the bright side, Rhode Island, New Hampshire and Massachusetts exports “grew at over twice the US average rate in 2014.” Because of the weather, it’s difficult to read too much into the economic performance of January and February 2015. For example, construction in the Northeast was off 55.6% from January to February, largely because of the weather. Predictably, most sectors that had a transportation component, moving people or freight, didn’t fare as well as say the sale of shovels, roof rakes and snow blowers. Despite the weather related issues, there is a fair amount of confidence in the regional economy and improvement in 2015, particularly in the metro-Boston area. The Urban Land Institute (ULI) in their “Emerging Real Estate Trends 2015 – The Americas”, ranked metro-Boston 9th – the only Northeast city in the top fifteen. Their ranking system is unique and blends “Investment-Development-Home Building” giving a more balanced appraisal of the market. CBRE in their assessment of the region wrote, “The local New England economy remains vibrant, diverse and well positioned for continued steady growth, projected at an average rate of 2.4% per year through 2018.” It also doesn’t hurt that Massachusetts pours in excess of $2.26 billion in various incentives to businesses in the State. Pharmaceutical firms, healthcare, financial and technology companies have been the major recipients of the largesse. The enormous availability of higher education makes the region a natural home for R&D. Some of the uptick in confidence comes because of lower prices on inflation sensitive expenditures like petroleum products. Had fuel not remained low during the winter, the forecasts for the spring would be considerably direr. As a result inflation for the region is running below 2% and consumer spending is rising. Economic Potholes It’s not all good. There are significant problems to address before the region returns to pre-recession levels. For example, just a decade ago Maine’s factories, paper & pulp and lumber mills, were the backbone of the Downeast economy. In nearly every instance these traditional job-makers are declining industries. Transitioning out of these industries is difficult. It’s nearly impossible to find and attract similar wage and job-generating industries in this era, especially in the Northeast. Still, other sectors of Maine’s economy seem to be improving. Professional and business services, education and healthcare and tourism are becoming engines of growth. And Maine’s actively trying to attract investment – the iconic toy building set, Lincoln Logs, moved from China to Maine in 2014, in a true reversal of manufacturing fortunes. While Lincoln Logs may not be construction of the scale the State is looking for, it does prove a point: alternatives are out there. Connecticut by economic sectors is the polar opposite of Maine, but both share the experience of an extremely slow recovery from the 2008 recession. The problem for Connecticut is the financial/insurance sector has been slow to recover from the recession. Add in the downturn in defense related industries and the fact that Indian Reservation Gaming revenues also tanked, and it’s easy to understand why the State has under-performed. In the January edition of the Connecticut Economic Digest Monthly, it takes only a cursory look at the charts in the back to realize Manufacturing Hours Earnings, Manufacturing Weekly Hours, Manufacturing Production Index, Secretary of State’s Net Business Starts, all are well behind peaks attained in 2008. According to State statistics, Connecticut has only recovered 76% of the total jobs lost during the March 2008 – February 2010 recession, far behind both the US recovery at 130% and even fellow New Englander, Massachusetts at 150%. Peter Gioia, Vice President and economist for the Connecticut Business and Industry Association (CIBA), said of the labor report, “This report confirms moderate job growth but it still highlights concerns that Connecticut has a long way to go to catch up to our neighbors and U.S. job performance overall.” Bullish or Bull? But the bulls are running or at least snorting as some economic forecasters are predicting a major growth spurt for the Nutmeg state. The University of Connecticut’s CCEA (Connecticut Center For Economic Analysis) on February 18th released a study predicting a rapid increase in economic activity 2015-16. CCEA’s report “Will Connecticut Thrive in an Uncertain World: Exchange Volatility, Shifting Labor Markets, and Collapsing Oil Prices,” is predicting the State’s economy will grow at over 8% outpacing even China in 2015. The report’s introduction sets the parameters, “Since the end of the Rell Recession [Connecticut  Recession] —a four year contraction, among the worst in the nation, that only ended in 2011, more than two years after the national recovery began and cut nearly 9% from state output—Connecticut has grown steadily, apparently faster than any of its Northeastern neighbors, save Massachusetts. Preliminary estimates for 2014 show Connecticut growing faster than the national economy and then surging by a stunning (and dubious) 8.1% in 2015, before tapering off to 3.2% growth in 2016. Connecticut may now be on a strong growth trajectory, driven by biotechnology, aerospace engineering, venture capital, and a significantly more competitive environment.” Other economic forecasters aren’t as bullish in their forecasts. TD Economics [TD Banks newsletters] in January stated Connecticut grew at only .8% GDP in 2014 [no official 2014 numbers out] and are forecasting 1.3% in 2015, and 1.4%. This is the lowest expected growth among the New England states. In contrast, Massachusetts is expected to grow at 2.4% this year and next. The CCEA report also hedges its bets citing problems, “inadequate public sector investment, inattention to major strategic opportunities and poor data” as stumbling blocks. CBIA’s also worried about the new round of corporate tax hikes [which the CIBA describes as “a cycle of budget deficits followed by tax hikes”]. CIBA says the FY 2016-17 state budget will add $496 million of impact to “job creators” [companies] arguing the “tax increase risk stalling the State’s economic rise.” In any case, there is considerable debate on the Connecticut forecast.