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Regional Report: New England Joining the Economic-Recovery Bandwagon

As a prime recipient of venture-capital investment, the New England region is continuing to attract entrepreneurs and grow jobs.

Directory 2016
New England finally joined other regions of the United States on the economic-recovery bandwagon in 2015, gaining traction that the states collectively hadn’t been able to gain since long before the Great Recession. The region’s job-growth performance was the latest encouraging sign in New England’s ongoing but painful evolution into a bastion of the services and technology economy and grudgingly away from its traditional manufacturing acumen. New England remains a vibrant economy with solid market fundamentals and some expansion decisions driven by a variety of industry sectors, including life sciences, technology, and insurance.

The rapt attention being paid to whether General Electric would actually move its headquarters out of Connecticut underscored the region’s dislocation as a manufacturing stronghold. But New England still can celebrate the occasional triumph of manufacturing expansion, such as the decision by the maker of Lincoln Logs to return some of the manufacture of the toys to Maine.

In fact, one of the signature economic development achievements of 2015 for the region came when Pride Manufacturing announced that production of the toy logs already had started at its Burnham, Maine, plant. Lincoln Logs have been used by children around the world for nearly a century. Pride already produced wooden golf accessories such as tees and cleats as well as wooden cigar tips at the factory. The company’s contract to produce Lincoln Logs is one example of a growing trend toward manufacturing finished wood products in Maine, a market that has been increasing as a number of companies redirect production from overseas to the U.S., according to analysts.

Venture-Capital Investment
One of the most significant indicators of a brightening picture for New England is the fact that the region received the third-highest level of venture-capital investment of any U.S. region, after the Silicon Valley and New York metro areas, according to the latest Money Tree survey by PricewaterhouseCoopers. New England venture funding in the second quarter of 2015 registered $1.5 billion going into 139 companies.

A big part of the reason for more venture-capital interest in New England resides in Burlington, Vermont. The company is the birthplace of Ben & Jerry’s, the progressive-minded and highly successful ice-cream brand now owned by Unilever, which helped create a local orientation toward entrepreneurship.

A Burlington entrepreneur created the ad-free, social-media site Ello, for instance, which exploded in popularity in 2014. Two Middlebury College graduates designed IrisVR, virtual-reality software geared toward engineers and architects. And a pair of Green Mountain College graduates opened Blu-Bin, one of the first commercial 3D-printing shops.

Thus, Vermont’s largest city made the list of NerdWallet’s most innovative tech hubs in 2015 at No. 9, right after highly acknowledged digital hot spots Provo, Utah, and Austin, Texas. Burlington, which also is a tourist mecca, made the list because it ranked third-highest in the number of tech-related patents per 1,000 residents and because Burlington enjoys a slightly above-average density of tech startups.

Job Growth
But overall job growth is perhaps the best indicator that New England is regaining some of its erstwhile economic footing. In fact, in the second half of 2015, New England experienced the fastest rate of year-over-year job gains since 2001 as well as persistent declines in unemployment rates. Home-price growth continued at a modest but consistent pace in the first half of the year, while single-family permits accelerated following a slow start to the year.

Specifically, payroll employment in the third quarter grew by 2.1 percent both in New England and for the United States as a whole. And while the nation posted 14 consecutive months of year-over-year job gains in excess of 2 percent, it was the first time that New England had recorded growth above 2 percent since February 2001. The leader in New England’s improving performance was Massachusetts, whose growth actually exceeded national and regional rates, with 2.6 percent job growth between August 2014 and August 2015.

With a wealth of universities and teaching hospitals in the region, job growth in Massachusetts was bolstered over the last several years by the education and health services sectors. They have been “bright spots” for the state as it rebounds from the nationwide recession, employing a higher percentage of the state’s workforce than these sectors do more broadly across the country, says Robert Triest, an economist with the Federal Reserve Bank of Boston. “This is an area where Massachusetts really excels.”

The spillover effect of all the brainpower in metro Boston also is boosting economic development in New Hampshire, which offers its own strong talent pool as well as easy commuting and other lifestyle advantages. As a state, it has focused on attracting and retaining technology companies.

The city of Nashua, for instance, has offered financial incentives to tech startups. One of them is Plexxi, which offers a line of switches used in data centers and enterprise information technology networks. The company currently has about 90 employees, most of whom are working at the Nashua headquarters. Last fall the firm entered expansion mode again with $35 million in new investor funding, which was added to the $48 million in funding since Plexxi was founded in 2011 by David Husak, an MIT graduate.

And Rhode Island is welcoming new businesses to the state that have been attracted by its export-friendly infrastructure as well as by Rhode Island officials’ trade missions abroad. For example, Monaghan Bros., which makes furniture for bars and restaurants in Ireland, plans to open a showroom in Rhode Island and eventually a factory.

Meanwhile, the experience of the state’s workforce is helping it secure economic traction even against places with much stronger reputations for job expansion. Okonite, for example, a cable manufacturer, decided to stay in Cumberland, Rhode Island, and double the square footage of its facility rather than expand in the oil patch, even though the utility power lines it makes are used mainly on drilling platforms in the Gulf of Mexico region.

“There was a strong argument being made that we could’ve and should’ve moved to Texas because that’s where our product is consumed,” an Okonite executive said. “But when we looked at it closely, we didn’t want to lose our [100] employees.”

The region will continue to grow more robustly through 2018, according to the New England Economic Project, which projects an average annual economic growth rate for the region of 2.4 percent through 2018, a rate slightly below the projected national average of 2.7 percent for the same period. That outlook reflects an expected peak of 2.9 percent growth in 2015 and then a leveling off to 2.7 percent in 2016.

Year-End Challenges
As noted, much of the discussion of the New England economy as 2016 breaks has been around whether General Electric, one of the world’s pre-eminent industrial giants, would actually leave Connecticut, the state where it has been headquartered for 40 years. G.E. CEO Jeffrey R. Immelt had complained publicly about Connecticut’s taxes last June, telling the company’s employees that he had asked a team to examine the company's options to relocate the headquarters to a state with a “more pro-business environment.

On January 13th, G.E. confirmed its decision to leave Connecticut — with metro Boston’s brainpower being a lure. Immelt told The New York Times that the Boston region is “an ecosystem that shares our aspirations.” He had previously predicted that G.E. would be a “top 10 software company” by 2020. Several cities were in the competition to lure G.E., but in the end, Boston’s cluster of universities and tech firms won out.

In the meantime, Connecticut has continued to add some jobs in the financial-services sector. Synchrony Financial, the spinoff of GE and GE Capital, plans to add at least 200 jobs in Stamford to its existing workforce of 350 people. The company will be eligible for grants of up to $20 million based on hiring targets, including $10 million for the first 200 jobs it creates.

“Fueling growth in our core industries is one of the keys to our state’s long-term economic success, and Connecticut has the right mix of financial services know-how and resources,” says Governor Malloy.
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