The nation’s gross domestic product is up, jobs are slowly being created and most other parts of the economy are doing well, but Connecticut businesses are anticipating that higher interest rates, the state’s high-cost environment and several other factors will contribute to a slowdown in the state’s economy.

The gross domestic product increased at an annual rate of 3.9 percent in the third quarter of this year, according to Todd Martin, an economic advisor for Bridgeport-based People’s Bank, who said the GDP historically grows at 3.2 percent.

“[The nation’s overall economy] is doing pretty well right now,” noted Martin. “Just about any measure you look at … it’s doing pretty well. Everything seems to be moving in the right direction.”

But there is concern about the effects of inflation and the declining value of the dollar, added Martin, who is predicting a slight slowdown.

Connecticut business owners who responded to surveys from the Connecticut Business and Industry Association also expect the economy to remain generally healthy, but foresee a slowdown.

“It looks like recovery will continue,” said Peter Gioia, an economist at CBIA.

‘Serious’ Issues

But businesses expect that the economy – both statewide and nationally – is likely to perform at a sub par level, with growth at 3 percent instead of the current 4 percent, he said. It will be difficult to sustain the current level of job growth, however. Gioia expects job growth to be 1 percent or less, with about 17,000 new jobs statewide next year.

“There are greater risks attached to the economy going forward,” he said.

Connecticut business owners have several concerns specific to the Constitution State, Gioia noted.

One of the biggest concerns is Connecticut’s high-cost environment – particularly health care costs, he said. Those costs drag down job creation.

Another concern is transportation around the state, Gioia said. Traffic, especially along Interstate 95, is a constant problem. Southwestern Connecticut is faced with an energy shortage that has been fixed by short-term patches. But debate is still raging over the long-term fix, which would include the installation of high-voltage wires in parts of the region. High energy costs are also a concern, Gioia said.

“We have real and serious infrastructure issues,” he said.

There is also low vitality in the state’s workforce, Gioia said. The growth rate of the labor force is very low or negative, he said. The lack of workers could make it difficult for companies to expand, and they could be more likely to expand or move to another area of the country – such as the Southwest – where the labor force is growing.

Connecticut needs to “face the fact” that the nation’s economy is in recovery, but that the state is adding jobs at one-fifth the rate of the country as a whole, Gioia said. The state government could help Connecticut businesses by making sure local costs don’t rise, by passing health care mandates and by keeping taxes where they are, he said.

State and local governments also should facilitate the development of new infrastructure, Gioia added. It is difficult when money is involved, but businesses and power companies trying to put in new infrastructure often run into problems with permitting, he said, and the state and local governments could facilitate those developments by granting permits.

National concerns will affect Connecticut businesses, as well. Businesses are concerned about the Federal Reserve raising interest rates, which likely will happen later this month, Martin said. The Fed started raising rates last June and will probably raise the interest rate a quarter of a percent to 2.25 percent after the December meeting, Martin said. He expects the rate to be 3.5 percent by the end of 2005.

The trade and federal budget deficits are also cause for concern. Because of the deficits, the healthy consumer spending over the past three years will slow down, Gioia said.

“I think we’re probably seeing that [trend] already with the Christmas season [being less successful than in past years],” he said.

The deficits are not immediate concerns, but will be in the long run, Martin said.

The value of the dollar is affected by those deficits, and the Bush administration has made it clear it does not support a strong dollar, Gioia said. In the short term, that could be an aid to manufacturing.

“That’s what they’re hoping,” he said.

The combination of the weak dollar with the deficits could mean that foreigners will stop buying the United States’ debt, he said.

“Over the long term, it’s a risky game [the administration is] playing,” Gioia said.