The New England economy will grow at a sluggish pace for the rest of this year, and in most states in the region the lethargy will persist into 1994 .
But New England's struggle to retrain workers and stimulate its industries will continue to be a concern, say economists and regional ratings officials.
Most states in the nation have had problems surviving this recession, but nowhere has the economic slowdown been felt more strongly than in New England.
The Massachusetts miracle ended with a thud in the late 1980s. Connecticut's defense and insurance industries have suffered massive job losses. Maine's tourist industry has slogged through two consecutive rainy summers, besides which vacationers had less money to spend. The Rhode Island banking industry has all but collapsed. Warm winters have put a damper on skiing in Vermont. And the real estate market in New Hampshire has imploded.
Further, the entire region has been plagued by heavy unemployment, skyrocketing real estate prices, a diminished work force, and a sharp decline in retail sales. And now that the nation's economy has begun to turn the corner, New England is still lagging behind.
In the 1980s, the economies of most of the New England states grew at a more rapid pace than ever. But the last five years have proven the axiom, "The bigger they are, the harder they fall. "
"During the 1980s, we had real questions about whether the states in New England were going to have enough workers." said Michael Johnston, managing director at Moody's Investors Service. "Over the last few years, though, it is pretty clear that there were."
Beginning in 1989, Johnston said, the New England states began an economic slide that has just begun to level off in most places. The climb back up will be lengthy and gradual. If anything, Johnston said, the recession has cost the region tens of thousands of jobs permanently.
That, however, may not be the worst news for the region.
"It is still too soon to tell whether the employment problems were part of a cyclical trend or are a part of a change in the mind-set of employers," Johnston said. "Growth as we have seen in the 1980s may not be healthy."
Rapid growth is not likely to be a problem for job seekers. All of the states in New England, except Maine, have lower unemployment than this time last year. At this point, the region would be happy to settle for gradual growth.
During the 1980s, the economy of New England had one of the firmest employment underpinnings available: the defense industry.
"The economic growth experienced in the 1980s was a direct result of the arms race," said Philip Braverman, senior vice president and chief economist at DKB Securities. "The states that benefited the most are now suffering the most."
Braverman offered Connecticut as an example of a state that is still struggling to improve its jobs picture, even as its budget woes have lessened.
"The state was in an incredible boom because of defense," said Kathleen Bradbury, assistant vice president and economist at the Federal Reserve Bank of Boston. "For Connecticut, we are not forecasting any real employment growth until the first quarter of 1994."
The monthly nonfarm payrolls indicator has not shown a great deal of growth anywhere in the region, Bradbury said, but the figure may be somewhat misleading.
For example, Bradbury said, the shutdown and cutbacks of major companies in New England have forced many workers off company payrolls and into business for themselves.
~By Choice or By Chance'
"Whether by choice or by chance, this has happened and can be seen in the reports that show real employment," Bradbury said. "There has been a widening between the nonfarm payrolls and real employment indicators." As the 1980s ended and the 1990s began, the two indicators were running on parallel courses, she noted.
Maine and Rhode Island may have had the easiest ride thrrough this recession. Rhode Island is still in fairly good economic shape, but Maine is beginning to suffer more.
"Maine is different than all of the other states in New England," said Karl Jacob, vice president and analyst in charge of local ratings in Maine for Moody's. "When Massahusetts was starting to tank, there was still no indication that would happen in Maine."
Because Maine's economy is so driven by, tourism and retail sales, Jacob said, its economic slowdown lagged behind the slowdowns of other states in the region. In addition, he said, in the early stages of an economic recovery, people are hesitant to spend on vacations and other nonessentials.
Although the just completed summer tourist season looked sluggish, Jacob said that L.L. Bean is scheduled to begin building a major distribution center in Freeport, Maine.
"That project has been on hold for about three years," Jacob said. "They appear to be building now to be better prepared for a stronger recovery in a couple of years."
Last month, Maine's credit rating was lowered to Aa from Aal because of continuing economic problems and the state's use of one-shots to plug budgetary holes.
"Maine's overall economy looks to be sluggish for the remainder of the year," Jacob said. "They are stabilizing, but really not improving yet."
In Rhode Island, there are still significant pressures on cities like Providence and West Warwick, but the state has a high income level and fairly stable industry, said Moody's senior analyst William Hogan.
While defense cuts and the statewide banking scandals have retarded Rhode Island's economic growth, Hogan said, stable tax collections and the willingness of most communities to raise revenues through taxing have helped ratings remain fairly stable.
"We are following the budgetary problems in Providence very closenly," Hogan said. "Last year, they had a large deficit because they decided against raising taxes. Their building authority has an issue scheduled for the end of the month and that will give us another chance to review their progress."
Among the hardest hit states, Massachusetts and Connecticut have gained the most headlines, but New Hampshire's problems have also been severe.
During the 1980s, the real estate values in New Hampshire increased more than in any other state in the region. Then, the state's economy started to slip with the rest of New England, and banks in the state found themselves on the short end of many defaulted loans.
"Unemployment is still a problem in New Hampshire." said Mary Ellen Reynolds, analyst for local New Hampshire ratings at Moody's. "A good sign for the state is that some of the larger back taxes are starting to be paid."
New Hampshire has harsh penalties for missing tax payments, Reynolds said. and that has helped its economy improved quicker than Vermont's.
In Vermont, the home of successful companies such as Dakin Farms and ice cream maker Ben & Jerry's Homemade Inc., high unemployment has been a way of life since 1990.
"Vermont is so dependent on tourism and skiing that their recovery needs to be supported by recoveries of other states," Reynolds said. In addition, he said, the Vermont offices for International Business Machines Corp. and General Electric Co. "have cut their work forces significantly."
While recovery from this recession may also seem daunting for Massachusetts, it is understandable considering that unemployment in the state has risen from 2% in the mid-1980s to as high as 10% in 1990.
Still, some economists say, the situation in Massachusetts appears not only to have stabilized but to have improved.
Allen Sinai, chief economist at Economic Advisers Inc., a subsidiary of Lehman Brothers. said Gov. William F. Weld may have saved the state from even worse fiscal disaster by dealing with budgetary concerns first and restarting the economy second.
"I think that the prospects for the state appear to be on very positive ground." Sinai said. "The economy appears to be expanding, retail sales are up, and home sales are starting to come around."
The fiscal health of Massachusetts has strengthened to the point where Weld was able to propose a $250 million tax cut last month, Sinai noted. Now that the state's finances and credit rating have improved, the tax cut can be the first step in bringing industry back into the state, he said.
Said Bradbury of the Federal Reserve: "I think Massachusetts is starting to experience the economic growth seen in the rest of the country. I'm sort of agnostic about the tax cut, but it could help bring some business back to the region."
Bradbury said she expects the Massachusetts economy to continue to grow at a moderate pace for the remainder of the year.
Stirring the Economic Pot
Sinai said other states in the region are still "very focused on agriculture and production to stir their economies." But in Massachusetts, he said. "officials seem to understand that increasing the state's biotechnology industries and improving their hospitals and universities can radically improve their position."
Although Weld has been criticized for some of his politically driven proposals. he "should be applauded" for his willingness to promote the state's economy to other countries, Sinai said.
Since becoming governor of Massachusetts, Weld has traveled to Russia, the United Kingdom, Israel, and Eastern European countries to stimulate trade.
Several economists said that although the trips have not yet stimulated the state's industry, they have the potential to give Massachusetts a leg up when the global economy improves.
In the Aug. 2 edition of Standard & Poor's Corp.'s Credit Week Municipal, the ratings agency said the state's high-technology, environmental control, and computer software industries will have to improve for the recovery to hit full stride.
As in other regions in the country, industries in New England have become more aware of the global economy. As a result, they are closely watching the progress of President Bill Clinton's proposed North American Free Trade Agreement.
For example, the economy of Vermont -- so dependent on the performance of IBM -- could be helped by lowered trade barriers between Canada and Mexico.
"Nafta will be an incredible positive for the entire area," Sinai said. "Although the near-term jobs picture will not be directly affected by the treaty. manufacturing will be helped in the long run."
The three leading importers of U.S. products are Japan, Canada, and Mexico, respectively. Massachusetts is the nation's 10th largest and New England's largest exporter of goods and services.
"There are things left to settle in the treaty before it is approved, and I understand that some low-paying jobs will be lost [nationwide]." Sinai said.
Nafta would also boost retail sales in New England Sinai said. The the different economies in the region will continue to perform at a moderate pace, but Nafta could assure a steady income for the region for many years to come.
