Connecticut’s economy showed strong performance in the second quarter of the year, expanding at an annualized rate of 4.6%, placing it tenth nationally and first in the Northeast. Year-to-date growth stands at 2.4%, outpacing the national average of 1.6%. However, underlying trends suggest caution, as labor market constraints and national economic headwinds pose challenges for sustained momentum.
The most recent employment data, from August, indicates that Connecticut’s payrolls grew by 0.7% over the past year—slightly below the national 0.9% increase but the fastest in New England. Yet, the state’s labor force has expanded by only 1% since February 2020, compared to nearly 4% nationwide, making it the second slowest in the region. This tight labor supply has driven unemployment down to 3.8%, one of the lowest rates in the U.S., but has also intensified hiring difficulties for businesses.
As of July, there were 71,000 unfilled jobs across the state. Employers report that labor costs are rising faster than any other expense, and more than three-quarters of firms surveyed in 2025 identified recruitment and retention as top priorities. Nationally, job growth has slowed, with the three-month average at just over 62,000 new positions per month—less than half the pace of the same period last year. October also saw a high number of announced layoffs, the most since 2020, according to Challenger.
ADP’s private payroll data adds to the caution: year-to-date hiring gains are nearly flat in New England and only up 0.3% nationally. While headline unemployment remains low, these indicators suggest a cooling labor market.
Sectoral shifts reveal a changing economic landscape. Since mid-2018, transportation, warehousing, and utilities have grown by 34%, followed by private education (12.6%), healthcare and social assistance (7.3%), construction (6%), and state government (4.3%). In contrast, retail has lost 10% of its jobs, while manufacturing and financial activities—two major sectors—have each declined by over 4%. Local government and information sectors have also contracted.
Over the past year, transportation and warehousing led with 2.6% growth, followed by accommodation and food services (2.4%), financial activities (2.1%), healthcare (1.9%), and professional and business services (1.5%). Manufacturing dipped 0.5%, retail fell 1.2%, construction dropped 1.5%, and federal government employment shrank by 2.2%.
Second-quarter GDP growth was driven by strong rebounds in financial activities (12.2%) and manufacturing (9%), though these followed a weak first quarter influenced by tariff policy changes. Notably, economic output in these sectors has grown even as employment has declined over the longer term.
Other expanding sectors include transportation and warehousing, professional and technical services, and healthcare, all showing solid gains since mid-2024. Meanwhile, accommodation and food services, retail trade, utilities, and federal civilian employment have declined year-over-year.
Uncertainty remains a dominant theme. Delays in federal data reporting have disrupted the release of key economic indicators, complicating forecasting. The U.S. Supreme Court is reviewing a case that could invalidate certain tariffs, with potential ripple effects on trade and pricing. Additionally, Connecticut lawmakers recently held a special session to reallocate funds in response to shifting federal spending, underscoring the need for adaptive fiscal planning.
For businesses and households, the current environment calls for prudence and flexibility as the year concludes.
— news from CBIA
— News Original —
Connecticut’s Economy Craves Caution, Adaptability
The CBIA Foundation’s September release of By the Numbers: Tracking Connecticut’s Economic Competitiveness was intended to act as a launchpad—reflecting where Connecticut has been, while anticipating where Connecticut is going. n nSince then, the data to write the rest of the story has been sparse as a result of the lapses in federal funding and government shutdown. n nWhile we saw a national glimpse at federal jobs numbers, Connecticut’s picture is missing a few critical pieces. n nStill, it’s important to build the best picture possible of where our economy is headed. n nLabor Market n nThe most recent labor market snapshot we have comes from August. While it’s far from complete, it offers some signs worth noting. n nConnecticut’s payrolls grew 0.7% over the past year—just shy of the national 0.9%—but still the fastest pace in New England. n nBeneath that headline, however, the story is less encouraging—Connecticut’s labor force has grown only 1% since February 2020, compared to nearly 4% nationally, ranking Connecticut second slowest in the region. n nThis tight labor market has pushed unemployment down to 3.8%, among the lowest rates in the country, but it also creates challenges for employers who are hiring. n nWith 71,000 open jobs as of July, businesses report labor costs rising faster than any other expense—and more than three quarters told CBIA’s 2025 Survey of Connecticut Businesses that recruitment and retention are top priorities. n nLooking beyond August, the national picture has grown more complicated. While September exceeded expectations with 119,000 new jobs, downward revisions to August brought the three-month average to just over 62,000 jobs per month—less than half the pace of the same period last year, when monthly gains averaged 133,000. n nAt the same time, Challenger reports that 2025 has already logged the most announced layoffs since 2020, with October among the busiest months for job cuts. n nPrivate payroll data from ADP adds another layer of caution—hiring has slowed markedly, with year-to-date gains essentially flat in New England and only 0.3% nationally. n nTaken together, these signals point to a national labor market that is cooling, even as headline unemployment remains low. n nIndustry Breakdown n nIndustry performance tells its own story about Connecticut’s evolving economy. n nSince payrolls peaked in mid-2018, the strongest gains have come from transportation, warehousing, and utilities—up an impressive 34%—followed by private education (12.6%), healthcare and social assistance (7.3%), construction (6%), and state government (4.3%). n nOn the other end of the spectrum, retail has shed 10% of its jobs, while manufacturing (-4.4%) and financial activities (-4.3%)—two of the state’s largest sectors—have also declined, alongside local government (-2.9%) and information (-2.5%). n nOver the past year, transportation and warehousing continued to lead with 2.6% growth, joined by accommodation and food services (2.4%), financial activities (2.1%), healthcare (1.9%), and professional and business services (1.5%). n nMeanwhile, manufacturing slipped 0.5%, retail fell 1.2%, construction dropped 1.5%, and federal government payrolls contracted by 2.2%. n nThese trends underscore both the resilience of service-oriented sectors and the ongoing challenges for traditional industries. n nConnecticut’s GDP: Strong Quarter, Mixed Signals n nConnecticut’s economy delivered a strong performance in the second quarter, growing at an annualized rate of 4.6%. n nThat pace ranked tenth nationally and first in the northeast. n nStill, year-to-date growth stands at 2.4%, comfortably ahead of the national average of 1.6%. n nRecent growth is a welcome change from longer-term trends that have shown weakness. Since 2019, Connecticut’s economy has expanded just 6.9%, compared to more than 16% nationally. n nWhen looking at sectors, financial activities and manufacturing posted standout gains in the second quarter, up 12.2% and 9% respectively. However, it is worth noting that this growth came on the heels of a challenging first quarter for both sectors that were heavily impacted by changes to tariff policy. n nThe longer run growth in both industries also differs from employment in those industries, which have seen long-run declines in payrolls. n nMeanwhile, transportation and warehousing, professional and technical services, and healthcare and social assistance have been leaders, growing 12%, 5%, and 3.3% since the second quarter of 2024. n nLagging behind are accommodation and food services (-.5%), retail trade (-1%), utilities (-4%), and federal civilian (-4.6%) year-over-year. n nUncertainty And The Data Gap n nIf there’s one theme that shadows every economic discussion right now, it’s uncertainty. n nTiming for key data releases has become unpredictable, leaving policymakers, businesses, and analysts to navigate without the usual guideposts. n nFederal reporting delays have already pushed back jobs and inflation updates, and the risk of further disruptions means that even near-term trends are harder to pin down. n nAdding to the uncertainty, the U.S. Supreme Court is weighing a case that could throw out some tariffs, a decision with potentially wide-ranging implications for trade and pricing. n nCloser to home, Connecticut lawmakers just convened a special session to allocate funds to offset changes in federal spending—another reminder that fiscal planning is being reshaped in real time. n nFor businesses and households alike, these shifting dynamics underscore the need for caution and adaptability as we close out the year.