A new report issued by National Business Capital found Connecticut is the second most at-risk state in the country for entering stagflation, an economic condition in which high inflation is coupled with low job growth, rendering the economy stagnant.
According to the report, Connecticut was next in line as a high stagflation risk state after California, with Connecticut showing high personal expenditures coupled with low productivity and underemployment “on the high side.” Saving the state, thus far, is high personal income growth.
“Things have been getting pretty expensive in the Constitution State,” the report says. “Unlike California, Connecticut’s stagflationary risks aren’t as immediate, but the state may have less wiggle room to dig its way out should it arrive.”
National Business Capital’s report comes just as Mark Zandi, chief economist for Moody’s, released a report in August showing Connecticut at high risk for recession, along with 21 other states, citing poor job numbers nationally combined with weak consumer spending, warning on X that the low consumer spending “isn’t consistent with a recession, but it is with an economy on the brink of one.”
According to the latest numbers released by the Connecticut Department of Labor (DOL), however, Connecticut doesn’t look especially bad: unemployment sits at 3.8 percent, below the national average; the state added 6,100 jobs in June and another 700 in July. Nationally, inflation ticked up in August to 2.9 percent. Although the state did experience a .9 percent contraction of GDP during the first quarter of 2025, personal income rose by 5.8 percent, according to the Bureau of Economic Analysis (BEA).
However, economist and former chairman the Economic Advisory Council under Gov. M. Jodi Rell, Don Klepper Smith, says that inflation is “substantially higher” than the officially released consumer price index, which doesn’t account for taxes, or the cost of maintaining a home, and has been changed multiple times since 1980 in such a way that inflation appears lower – a boon for politicians and the country’s checkbook as inflation increases are used to increase social security payments.
If the country were still measuring inflation as it did in 1980 – generally looked upon as an economically difficult time in the United States due to high inflation – the current rate would be significantly higher, something Klepper-Smith says is more reflective of what families are experiencing.
“Inflation is actually in the neighborhood of ten percent, and I think that is what most people are experiencing,” Klepper-Smith said. “We’ve never had consumer confidence this low without recession, and the Connecticut economy right now, like most New England states, I think, is in recession.”
“What we’re seeing with policy initiatives, federal cutbacks, and all of these things, and I think at the end of the day, we can see various sectors contracting,” Klepper-Smith continued. He added that federal spending usually provides a “shock absorber” to declining business investment and consumer sentiment, but that has not proven to be the case lately. “The official statistics aren’t really reflecting that economic weakness.”
While Connecticut posted positive job growth in June and July, those numbers also come amidst a large downward adjustment at the national level. The Bureau of Labor Statistics issued its annual data revision, showing 911,000 fewer jobs than previously thought, the largest downward revision since 2002.
Similarly, Connecticut’s 6,100 job posts in June came after the previous month’s loss of 4,200 jobs, and the Connecticut Business and Industry Association noted the state, at that point, had only gained 2,600 jobs in the first half of 2025. The very modest 700 jobs added in July, the organization’s executive director Chris DiPentima said, “reflects Connecticut’s long-term job growth challenges.”
One of those challenges remarked on consistently by the state’s largest business association is the number of unfilled job openings and the reduced size of Connecticut’s labor force since the COVID pandemic.
“The pace of job growth continues to fall short of demand – we have 77,000 job openings and employers continue to report that the labor shortage is their biggest challenge,” DiPentima said in a press release. “While job openings are 9% above pre-pandemic levels, the labor force has only grown 1.2%, trailing most of the region and the country.”
“I think the country obviously has a problem now of wondering whether or not we’re teetering toward that recession or a stagflationary period, and whether or not New England is in a worse position than other places is always hard to say,” said Dustn Nord, head of CBIA’s Foundation for Economic Growth and Opportunity. “I think what is fair to say is that Connecticut and New England have some specific challenges that we hear about all the time that are definitely drags on the economy.”
Those drags, according to Nord, are the price of electricity, the price of housing, and the lack of workers to fill needed openings. The cost of electricity in Connecticut, which typically rates second-highest in the continental U.S., has been the source of political finger-pointing over the past two years, following a dramatic post-COVID jump in public benefits charges.
The debate over housing has persisted for years, with legislative attempts to override aspects of local zoning authority to enable more multi-family housing construction meeting fierce backlash. Gov. Ned Lamont in 2025 vetoed a major housing bill that had passed the General Assembly, which garnered ample criticism from housing advocates and may have been the final straw that got him a primary challenge from Rep. Josh Elliott, D-Hamden.
Citing two recent studies — one by the United Way showing a 17 percent increase in Connecticut households facing financial instability since 2019, and another showing that more than half of Connecticut families struggle to afford basic needs like electricity — Senate Republican Leader Stephen Harding, R-Brookfield, issued a statement saying Connecticut is in “an affordability crisis” and leveling blame at “one party Democrat rule.”
“Shelter and energy are the two areas that New England and Connecticut specifically are really struggling with. That’s what we hear from people and that’s what we see in the data,” Nord said. “We’re still lagging the country when it comes to jobs, but the reason has less to do with demand, and more to do with supplying those workers.”
The lack of adequate candidates to fill Connecticut’s job market has also long been a complaint by businesses. In CBIA’s annual business survey released in August, 76 percent of employers reported difficulty “hiring and retaining workers, with skills gaps a key challenge.”
“The reason we haven’t had job growth is because we haven’t had labor force growth. We haven’t had people moving to the state, growing the overall labor pool to fill those job openings,” Nord continued. Connecticut’s population growth has largely been stagnant over the last decade, often losing residents to lower-cost states like Florida.
If the country heads into a recession, however, Connecticut government is likely more prepared than most, having built up a rainy day fund of nearly $4 billion under the state’s so-called “fiscal guardrails,” including the volatility cap, which moved surplus income tax revenue tied to Wall Street into the rainy day fund and, once that was filled, used to pay down Connecticut’s long-standing pension debt. That rainy day fund is meant to backstop any losses from a recession; the previous recession of 2008 and 2009 set Connecticut up for a decade of poor economic growth, budget deficits, and ballooning pension payments that resulted in three tax increases.
Under the latest budget, however, those guardrails were somewhat adjusted to allow a childcare trust fund to be set up for the purpose of expanding childcare services and eventually being able to offer subsidized childcare for families. According to CBIA’s survey, 59 percent of businesses said access to “affordable, quality childcare is important for attracting and retaining employees.”
Whether Connecticut’s economic situation is merely par for the course in a state that spent a post-recession decade trying to recover the loss of jobs, or indicative of broader and more concerning national trends remains to be seen; the BEA will be releasing GDP data for the second quarter of 2025 later this month, which should give some more clues.
Klepper-Smith, however, says often the official proclamation of a recession lags behind what people experience in their lives, noting that the National Bureau of Economic Research’s alerting of the 2008 recession came only after the presidential election and only after the country had been in recession for a year.
“It’s usually after the fact,” Klepper-Smith said. “NBER is not in the habit of calling economic downturns in real time. They wait until they collect the data. But we’re seeing all the fundamentals for recession in terms of consumer sentiment, hiring, and business investment.”
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“Unemployment figures” as measured by the state are completely inaccurate. I would only trust it if it was actually based on a statewide survey, but it isn’t. It’s largely based on unemployment insurance claims which last only 6 months.
How does tha state of Connecticut have a surplus, against a never ending deficit. Unemployment is low because tha department of labor rejects a lot of claims and has a 2 year backlog for appeals, on owed unemployment benefits.
Yet, Connecticut state workers always find away to give themselves raises, which goes against Connecticut state constitution.
I loathe CT. I hate, hate, hate the place so much that I would not mind a nuclear detonation over Hartford and Bridgeport.