1. The Connecticut Economic Outlook and The Status of Manufacturing September 5, 2002 Rocky Hill, Connecticut Bruce G. Blakey Northeast Utilities Northeast Utilities System

2. 1. Connecticut Employment Trends Connecticut employment declined by 0.7% through June 2002 with the largest losses in manufacturing. The decline of manufacturing employment has been a long-run phenomenon. The employment decline acceleration in the early 1980’s. Concurrently, there has been a steady growth in non manufacturing employment.

3. 2. Employment from 1970 to 2002 Connecticut Manufacturing employment declined by 46%. June 2002June 1970Difference% Change Transportation Equipment 45,40085,900-40,500-47.1% Total Manufacturing 242,400450,000-207,600-46.1% Total Non Manufacturing 1,446,400773,100673,30087.1% Total Employment 1,688,8001,223,100465,70038.1%

4. 3. Manufacturing Establishments by Number of Employees The number of large manufacturing employers has declined significantly. Number of Employees 19672000 1 to 193,2993,727 500+17252 All Establishments 5,5985,503

5. 4. Employment, Real Manufacturing Gross Product and Electric Usage In the 1990’s real manufacturing gross product ($) grew by 38% while employment declined by 23% and electric usage declined by 8%. In effect, manufacturers are making more high value products with fewer workers. By SIC, the relationship of electricity to jobs and product is almost random.

6. 5. Components of Production Costs Materials, services and labor, which are expensive in Connecticut (+5 to 25%) dominate production costs. Approximate Percentage Manufacturing Commercial Services Materials & Service6238 Labor2541 Indirect Business Tax22 Electricity2.51.5 Other Energy2.51.5 Other Costs616 Sources: NY State Energy Plan, Internal Revenue Service and Economic and Load Forecasting

7. 6. Average Cents/KWH Connecticut electric prices ranked 9th based on industrial price. 2001 Electric Utility Average Cents per Kilowatthour Rank ResidentialCommercialIndustrialTotal 1 Hawaii15.914.311.213.5 2 Rhode Island12.511.011.211.6 3 Massachusetts12.411.410.011.5 4 New Hampshire12.110.49.110.7 5 New Jersey11.09.78.59.9 6 Maine12.112.38.411.1 7 Alaska12.510.18.310.7 8 Vermont12.711.07.710.6 9 Connecticut11.19.37.59.6 10 California9.4 7.38.5 17 New York14.613.15.411.4 New England12.010.89.010.8 Middle Atlantic12.210.76.19.8 U.S. Average8.87.85.27.3 Source: Department of Energy

8. 7. 2003 Connecticut Outlook The 2003 outlook assumes a recovery starting in the second half of 2002. 200120022003 Population 0.4%0.3%0.2% Real Personal Income 2.8%-0.9%1.2% Total Employment -0.6%-1.0%1.3% Manufacturing Employment -3.6%-3.4%1.7% Non manufacturing Employment -0.1%-0.6%1.3% Permits 9,3009,500

9. 8. The Long-run Manufacturing Outlook The manufacturing outlook indicates fewer jobs but strong growth of real product ($). 2001 2001 to 2011 Annual WageKWh Per Employee EmploymentReal GSP Transportation Equipment $61,00013,800-2.2%46.2% Fabricated Metals $43,80026,600-3.3%16.3% Total $55,70019,900-2.9%37.9%

10. 9. Conclusions Manufacturing will continue to be cyclical and a very significant part of the Connecticut economy. Manufacturing will continue to be (a) vulnerable to international competition and (b) greatly affected by the business climate. Wages will be high and lifted by worker shortages.

11. 9. Conclusions Continued “High tech” and relatively small manufacturers will continue to have a strong Connecticut presence. Long-run employment will slowly decline, but real gross product will grow. Industrial electric demand will grow slowly.