Revisionist view: Northeast's real estate boom masked economy's weaknesses

November 18, 1990|By Kirk Johnson | Kirk Johnson,New York Times News Service

HARTFORD, Conn. -- The image of New England that was beamed to the larger world in the 1980s was that of an economy in fighting form, brawny and booming, with high technology and high finance leading the march toward some glorious new era for the country's original industrial heartland.

But hindsight shows holes in that picture.

As prosperity has receded across the Northeast, some economists have concluded that what looked like a hearty hybrid of old industry and new was more like a hothouse flower that bloomed briefly, if brilliantly, in an artificial environment of easy money, speculation and unwarranted optimism.

At the core of the revisionist view is real estate. Although it was clear during the peak years of the mid-1980s that developers and construction crews were changing the face of

the region -- especially in cities such as Hartford, Conn., where the amount of downtown office space tripled in just 10 years -- the prevailing attitude then was that the building and real estate lending was simply a reflection of economic health.

For a while, that was the case. The military buildup that began in the late 1970s and the spurt of growth in the computer-industry corridor around Boston heralded a new era.

The swelling profits at banks and insurance companies seemed to be another sign, if one was needed, that good times were here to stay.

But in the period that most people would identify as the best of times -- 1984 to 1988 -- New England's economic base, especially manufacturing, was already in decline.

The six-state region lost nearly 56,000 manufacturing jobs in 1986 alone, for example, according to DRI/McGraw Hill, an economic consulting firm in Massachusetts.

The effect of those losses, however, was "masked," according to a study recently published by the Federal Reserve Bank of Boston and only became apparent in 1989, when construction fell and overall employment leveled off.

From 1984 to 1988, construction employment alone rose an average of 8.8 percent a year in the six New England states, the study said.

In 1986, in an atmosphere where many people believed that the production of ideas, information and services represented the economicfuture, the region gained a total of 166,000 jobs even while it lost 56,000 in manufacturing.

What was happening, economists say, was the equivalent of forgoing a balanced if boring meal in favor of a plate full of candy bars. Manufacturing jobs make an economy grow, albeit slowly.

Real estate, with its effects on law and banking -- not to mention the restaurants and car dealerships where people splurged -- can make an economy bounce off the walls.

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