Monday, October 11, 2010
The Massachusetts economy has been growing faster than the national economy since the state started on the path to recovery well over a year ago. Employment levels have been growing at the fastest pace in decades. In fact, for the year ending in August, Massachusetts added more jobs than any state other than Texas. The recovery, which started in the spring of 2009, has been led by the state's tech sector. Both nationally and globally, businesses have been investing in high-tech equipment, which disproportionately benefits the state due to its industrial mix. Nationally, there have been five successive quarters of business demand for technology products. In addition, tech sensitive sectors of the state economy, such as consulting and design services, have experienced healthy growth. Other sectors of the economy doing well include pharmaceutical production and medical research. As a result of this growth, state tax revenues have been growing strongly of late.
Despite this positive news, Massachusetts continues to face serious near-term and long-term economic challenges. Total employment in the state remains around 200,000 jobs below the levels witnessed in the first quarter of 2001. And there are a number of reasons to be concerned that the Commonwealth's current growth trajectory is not sustainable.
Coming out of the recession, growth was propelled by the restocking of inventories, which had been cut drastically at the onset of the recession. The federal stimulus provided additional impetus to the economy but the past few months have seen the end of the restocking cycle, and the impact of these stimulus dollars is expected to diminish in the near future. There appears to be little evidence of pent-up demand for housing or consumer durable goods waiting in the wings to sustain the national economic recovery. Of particular concern is the housing sector which continues to deal with the aftermath of the bursting of the house-price bubble and moribund demand for new construction. And as households are hard at work repairing their balance sheets in the face of sizeable declines in the value of their homes and equity portfolios, there is little appetite for large increases in consumption.
Additionally, the state's recovery has been decidedly unbalanced. Jobs continue to be lost in many areas of the state outside metropolitan Boston. The state's older urban centers such as Lowell-Lawrence, Fall River-New Bedford, North Adams-Pittsfield, Springfield-Holyoke, and Fitchburg-Leominster are not sharing in metro Boston's economic growth. In addition to a high state-wide unemployment rate, the number of "underemployed" workers is far higher than during the last recession. Outside of the tech sector of the economy, most job vacancies in the state are for part-time or seasonal work. The state government has a looming structural budget gap to deal with in the near future, and town and city government budgets remain in dire shape. Absent additional federal stimulus investments, these budgetary issues bode poorly for state and local government employment.
So while the state has seen a milder recession and a faster recovery than the nation overall, the recovery is fragile and uneven. If the national economy continues to flounder, the state will likely experience a slowing rate of economic growth in the months to come.
This summary reflects the discussion of the members of the editorial board of MassBenchmarks at its meeting on October 1, 2010. It was prepared by Executive Editor Robert Nakosteen and was reviewed and edited by the members of the editorial board. While discussion among the Board members was spirited and individual Board members hold a wide variety of views on current economic conditions, this summary reflects the consensus view of the Board regarding the current state of the Massachusetts economy.
MassBenchmarks is the journal of the Massachusetts economy and is published by the UMass Donahue Institute in collaboration with the Federal Reserve Bank of Boston. Its editorial board is made up of leading economic analysts from across Massachusetts. The opinions expressed by the Editorial Board do not necessarily represent the opinions of the Federal Reserve or the University of Massachusetts.
For a list of the members of the MassBenchmarks Editorial Board, please visit: http://www.massbenchmarks.org/about/staff.htm
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