Standard & Poor's Corp. yesterday reported that the economic recovery has reached New England and gained steam during the first quarter of 1994.

In this week's issue of Credit Week Municipal, the rating agency said that with the regional recovery firmly underway, "the prospects for credit quality will improve."

From 1989 through 1992, New England was one of the regions hardest hit by the national recession. Standard & Poor's attributes the regional decline to an overbuilt real estate industry, cuts in defense spending, bank failures, a decline in the microcomputer industry, and deteriorating cost competitiveness with other regions.

During that time, overall payroll employment fell 10%. Over the past four quarters, though, the states of New Hampshire and Masschusetts have seen large reversals in employment. During the period, Masschusetts jobs have increased by 3.4% and New Hampshire jobs have grown by 4.1%, according to the rating agency.

Over the next five year, Standard & Poor's said, employment and income will expand the most in Vermont and New Hampshire. Massachysetts and Maine will grow at a moderate clip, and Connecticut and Rhode Island will expand the least.

Connecticut's reliance on defense spending and struggling airline manufacturing has slowed that state's recovery. As a result, the state's employment rolls are expected to grow only 1.1% over the next five years, the smallest growth rate in the nation.

Maine's recovery has been spurred by an uptick in tourism and consumer spending.

Rhode Island's recession was worsened by the 1991 banking crisis in the state. But Standard & Poor's said that tax and financial incentives have begun to bring jobs back to the state, especially in biotechnology and computer manufacturing.

Both Vermont and New Hampshire were mentioned in the report as being resilient states that have started a slow economic growth period that should carry through the next five years.

Standard & Poor's rates Connecticut, Rhode Island, and Vermont AA-minus; Maine AA-plus; and Massachusetts, which had sunk as low as BBB, A-plus.

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