- New business formation in Connecticut grows 20 percent between January 2019 and November 2021, well above the historic average of 5 percent
- Real estate, Stamford businesses are leaders in new business formation
- Department of Labor economic forecast anticipates strong year ahead for Connecticut jobs and GDP growth, but also foresees some potential challenges
Summary by Dirk Langeveld
Connecticut business formation proceeded at a rapid clip in 2021, according to data from the Connecticut Secretary of State. A report from the Connecticut Department of Labor is also cautiously optimistic, saying the state may face faltering growth in some sectors in 2022 but experienced a rapid economic recovery in 2021.
CTData Collaborative looked at business formation data from January 2019 to November 2021. The COVID-19 pandemic dented new business growth, with only 2,196 companies registered in April 2020, but the number of registrations has increased steadily since then. The number of new business registrations in each month of 2021 exceeded the number of registrations in the same month in 2019.
There were 47,584 new business registrations in 2021, up from 39,570 in 2020 and 36,323 in 2019. The 20 percent boost in new business formation in 2021, even without data available for the month of December, was four times greater than the average growth of 5 percent in the decade between 2010 and 2020.
Women-owned and minority-owned businesses have become more common in Connecticut in recent years. Between January 2019 and November 2021, 15 percent of new businesses identified as women-owned while 13 percent identified as minority-owned. Women-owned businesses made up 43 percent of new starts in health care and social assistance as well as 35 percent of new starts in educational services, while minority-owned businesses accounted for 28 percent of new starts in transportation and warehousing.
Three-quarters of new businesses identified their industry while registering, with the greatest share of new businesses in real estate rental and leasing; professional, scientific, and technical services; other services; retail trade; and construction. Stamford was the home of 5,578 new businesses established during the data period, while 5,497 were established in Bridgeport and 4,091 in Hartford.
The Connecticut Department of Labor recently released its latest issue of the Connecticut Economic Digest, summarizing the state’s economic trends in 2021 as well as the outlook for 2022. The department says that while there are strong signs of recovery, there is still work ahead before a full recovery.
The report notes a report from the Federal Reserve Bank of Philadelphia anticipating that GDP in the United States grew by 5.5 percent in 2021 and will slow to 3.9 percent growth in 2022. This is more cautious than the International Monetary Fund’s forecast, which expects U.S. growth of 6 percent in 2021 and 5.2 percent in 2022.
The IMF anticipates that many factors will weigh on employment growth in 2022, including shifts to automation, the slow work of matching unemployed workers to new employers, the mismatch between labor needs and applicants in several industries, and ongoing fears about COVID-19. However, the Federal Reserve Bank of Philadelphia report takes a more bullish outlook, expecting job growth to accelerate from 3.9 million in 2021 to 5.3 million in 2022.
Economic recovery in the United States has been uneven, with some states already recovered to their pre-pandemic employment and others expected to take years to reach this level. The report says a slow recovery is anticipated in the Northeast, which suffered the worst losses in jobs and output during the pandemic, with recovery potentially extending into 2025.
Connecticut experienced slow growth at the start of 2021, adding just 1,000 jobs and 1.8 percent GDP growth in the first quarter of the year. However, the state’s economy accelerated rapidly with the distribution of COVID-19 vaccines, adding 11,000 jobs in the second quarter and 19,000 in the third quarter. GDP growth for the second quarter of 2021, the last data available on output, increased 5.9 percent.
A total of 13,000 newly added jobs in Connecticut were in leisure and hospitality. Another 12,700 were added in transportation, retail trade, and warehousing.
The Department of Labor cited a projection from IHS Markit which suggests that nearly 60,000 new jobs will be created in Connecticut in 2022. While this forecast anticipates continued strong gains in leisure and hospitality gains, it also expects that jobs growth will slow in transportation and warehousing, with a potential decline in retail as online shopping habits dominate. IHS Markit suggests that jobs gains will shift to professional and business services as well as education and health care.
IHS Markit suggests that Connecticut will return to its pre-pandemic workforce size by 2023. The Department of Labor says this could be optimistic, with factors such as retirements, the tendency of younger potential workers to pursue education for longer periods, COVID-19 concerns, child care necessities, and disdain for low-paying or hazardous work creating potential challenges.
The report says the rapid recovery of Connecticut’s GDP has been one positive sign of recent economic trends, since the state’s GDP had been lagging before the pandemic.
“Connecticut made up much of that lost ground in 2021 and should recover the balance and then some in 2022 if real GDP expands at its expected 3.8 percent,” the report states. “With 2 percent annual growth in the years after that, the state would be on a path to renewed economic health with output in the information and professional and business service sectors leading the way.”
One point of concern is a loss of jobs among Connecticut’s durable goods manufacturers and financial activities employers. While financial activities make up just 7 percent of Connecticut’s jobs, they also account for 29 percent of its GDP. IHS Markit anticipates a modest recovery in the sector this year.
The report suggests that while supply chain challenges will continue to pose a challenge to Connecticut and the U.S. economy as a whole, they could have a more beneficial impact on the state’s manufacturers if support grows for the local sourcing of products and supplies.