While state officials say the economy is healthy with an unemployment rate lower than the national average and robust economic growth, state Comptroller Sean Scanlon and economists warn that the AI bubble, fears of AI replacing jobs and significant cuts from the federal government could spell trouble for the state.
“The economy is in a weird place right now,” said Scanlon. “If you look at Wall Street, it is booming. A lot of it is tied to a lot of investment in AI and there are a lot of people, myself included, who fear that it is becoming a bubble similar to what happened in 2000 around the dot-com bubble and that bubble is going to burst at some point.”
Scanlon predicts when the bubble bursts Connecticut and the country will experience a significant recession.
“.. Combine a recession with the affordability challenges people are having right now on a personal level and less money coming from Washington, we are going to be in a difficult position,” he said. “AI is going to massively disrupt our economy.”
Brian Marks, associate professor of practice in economics and business analytics at University of New Haven, said the economy is in a fragile state.
“We are in a fragile state,” he said. “There is a lot of uncertainty out there and uncertainty causes individuals to delay purchasing decisions and that cascades throughout the economy. We could be at a tipping point.”
He added that high inflation and tariffs are also negatively impacting the economy.
“Some of the margins of costs consumers are facing with respect to tariffs are going to be passed on to the consumers,” he said. “The biggest challenge that is potentially out of Connecticut’s control is federal policy as it impacts Affordable Care Act subsidies, tariffs and immigration.”
Connecticut’s economic picture
Connecticut’s unemployment rate is at 4.0% compared to 4.6% for the nation, representing robust growth, according to economists.
Scanlon said last year the state was in the top half of the nation in terms of economic growth.
“Connecticut has spent the last 10 years getting out of a fiscal crisis,” he said. “Fast forward 10 years and we have a $4 billion rainy day fund and seven consecutive years of budget surpluses. We have gotten out of the crisis.”
Gov. Ned Lamont’s budget staff and the legislature’s nonpartisan Office of Fiscal Analysis released new revenue estimates finding minimal change in projected tax receipts for both this fiscal year and the following year.
Lamont said in a statement that the consensus revenue forecast “reaffirms what we’ve been saying all along – Connecticut’s economy is resilient.
“Despite international and national economic uncertainty, our state continues to demonstrate strength and stability,” he said. “My top priority remains making Connecticut more affordable for middle class and working class families. We will keep investing in policies that lower costs, create good-paying jobs and ensure that families and businesses can grow and thrive here in Connecticut.”
But the director of Connecticut’s Center for Economic Analysis highlighted significant concerns about the state’s job wage growth.
Citing statistics from the The St. Louis Federal Reserve, Fred Carstensen, also a professor of finance and economics at UConn, said Connecticut ranks last among all states in payroll growth from 1989 to 2005.
“Over the period from 1989 to 2024, national job growth was approximately 47.9%, while Connecticut’s job growth was only 1.9%,” Carstensen said. “Connecticut has significantly lagged the national average, ranking 50th among all states in payroll growth during this time.”
Similar to other states, the state has also seen a cooling of the labor market with unemployment declining by 5,700 jobs in September, according to a January report from Scanlon.
“Job growth has been slower this year (0.3%) after several years of pandemic recovery with higher gains,” Scanlon’s report said.
Federal policies impact on economy
David Cadden, professor emeritus for the department of strategy and entrepreneurship at Quinnipiac University, said it is important to weigh the impact of tariffs and its impact on inflation.
He said many employers may wish not to pass the entire expense of the tariffs on to their customers, taking on part of the expenses which affect hiring and generate layoffs.
Cadden said the U.S. Supreme Court is weighing whether the president has a right to impose such tariffs. The Supreme Court has yet to issue a ruling on the matter.
The Constitution says Congress has the power to levy tariffs. But, in a first, the Trump administration argues that an emergency law allowing the president to regulate importation also includes imposing tariffs.
Cadden said cuts to higher education in research funding are also troublesome.
“What happens as research projects need a continued flow of cash?” he said. “Canada, Switzerland, England and Australia have started to lay out offers of endowed chairs to some of our flight researchers.”
President Trump’s administration terminated hundreds of grants that were previously awarded and reduced staff at funding agencies, leaving universities that depend on federal research dollars scrambling.
Scanlon reported in his state economic update that Connecticut’s colleges and universities contributed an estimated $6.4 billion or more to the state’s gross regional product and employed more than 3% of the state’s workforce in 2024.
“Additionally, federal cuts to research funding, new caps on federal borrowing for students, new accountability measures, and a higher endowment tax on certain universities will be pressuring higher education institution finances in the years ahead,” Scanlon reported.
Mark Gius, professor of economics at Quinnipiac University, said proposed policies coming from the White House such as putting a cap on the credit card interest rates could also impact the economy, coupled with uncertainty from unrest in Venezuela, Iran and Greenland.
AI and the job market
Vahid Behzadan, associate professor of computer science and data science at the University of New Haven and cofounder of the Connecticut AI Alliance, a consortium of 21 universities, industrial action groups and communities across the state, said he is concerned about AI replacing jobs.
“AI is the technology for automated problem solving,” he said. “Problem solving is what creates the labor market and what employment is all about. When problem solving becomes automated at much lower cost, it is inevitable that the labor market is going to shrink and as AI technology progresses, the rate of shrinkage of the labor market increases. That is one of the bigger concerns.”
Behzadan added that he is seeing early warning signs of AI replacing jobs, particularly in computer science.
“It appears that many white collar professionals are worried about replacement, not just displacement of their job with automated systems based on AI,” he said. “This ranges from software development and computer science all the way to health care including radiology.”
Gius also shared concerns that AI will displace workers and occupations such as attorneys and radiologists. He said it is already impacting college graduates, many of whom have struggled to find full time jobs as companies reduce hiring.
But Marks shared a differing view: he believes AI will foster economic growth.
“I am cautiously optimistic when it comes to AI because of the productivity enhancements and the ability to transform an economy that could leverage research and development,” he said.
Behzadan said that he hopes the state government would formally establish a program to track and report the statistics related to job loss due to AI adoption.
Looking ahead
Scanlon said it is important to focus on increasing economic growth.
“We simply have too many jobs that are open that can’t be filled because we don’t have enough people with the skills to fill them,” he said. “A big focus for Connecticut going forward has to be upskilling and reskilling the people that do the job today.”
Scanlon said it is important to train people in technical blue collar trade level skills which are not jeopardized by the future of AI.
He said in other fields like manufacturing and nursing the state is not training workers as fast as the workforce is losing them to retirement.
Further, he said the state has to solve the affordability crisis.
“We are in a good position with our rainy day fund and surplus to deal with the challenges,” he said. “With these looming storm clouds on the horizon, what is the right balance between lowering costs and being prepared for economic problems?”
The Associated Press contributed to this story.