By JOSEPH DE AVILA
Connecticut was the only state to post negative economic growth in 2012, the latest indication of its sluggish recovery from the recession and the financial crisis.
Connecticut's gross domestic product shrank by 0.1%, the worst performance in the U.S., according to a U.S. Bureau of Economic Analysis report released Thursday. Job losses in financial services, the real-estate industry and federal, state and local government were the big reasons why.
New Jersey and New York both grew 1.3% and ranked 36th and 37th in the U.S. respectively. The rest of the country grew more rapidly. The nation's GDP expanded by 2.5%.
"The Connecticut economy is coming back inch by inch instead of yard by yard," said Don Klepper-Smith, chief economist at DataCore Partners, an economic and demographic research firm in New Haven, Conn. "The recovery has been spotty at best."
Connecticut's Democratic governor, Dannel Malloy, pointed to weakness in the European economy—an important trading partner—as one reason why the state's economic performance has been shaky. "We need to do better," he said. "I'll go with the statistic that there is general agreement on—that we created 26,000 private-sector jobs in the last two years, the fastest two-year increase in jobs since the 1990s."
Mr. Malloy has made investing in technology and engineering one of the pillars of his economic-development plan. The Legislature on Wednesday approved a $1.5 billion plan for the University of Connecticut to expand its focus on science and technology. The state also spent $291 million to lure genetics research nonprofit Jackson Laboratory from Maine.
Those are long-term projects that can't fix the state's short-term jobs slump. It has regained only 47% of the jobs it lost during the recession, the state labor department said. The state's unemployment rate is 8%, compared with 7.5% for the U.S.
Connecticut's poor GDP growth took some economists by surprise. "I wasn't expecting it to be so bad," said Steven Lanza, an economist with the University of Connecticut.
That surprise stemmed from Connecticut's high marks in 2011, when the Bureau of Economic Analysis pegged its GDP growth at 2%, among the best in the U.S. On Thursday, the 2011 number was revised to -0.1%.
The weak performance from financial-services and real-estate firms shows the financial crisis and the collapse of the housing bubble continue to drag on Connecticut's economic performance, Mr. Lanza said.
The financial-activities sector, which also includes real-estate jobs, fell by 2,200 between December 2011 and December 2012. Construction jobs fell by 1,800 during that same time.
Government layoffs also have weighed down economic growth in Connecticut, the federal report said. Only Florida, Wisconsin and Louisiana's governments shrank more. "One of the things that Connecticut has done…is shrink the size of its government faster than just about any other state," Mr. Malloy said.
The state shed 1,000 government jobs from December 2011 to December 2012.
Economists said the U.S. has begun to experience a housing rebound that Connecticut has yet to join. Median sales prices in Connecticut are still down 30% from the peak levels of the housing boom, Mr. Lanza said.
"You don't have a sustainable recovery until you have a housing recovery. And we don't have a housing recovery here yet," said Peter Gioia, an economist with the Connecticut Business and Industry Association in Hartford, Conn.
There were bright spots in the BEA report for Connecticut. Durable-goods manufacturing and management of companies—which typically reflects corporate headquarters—both posted gains in 2012.