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Tuesday, February 28, 2012


Massachusetts Economy on a Slow-Growth Track,
Declares MassBenchmarks Editorial Board

Leading economists express cautious optimism and highlight
continued challenges facing blue-collar and younger workers

Following a year when the state’s rate of economic growth first exceeded and then fell short of national growth, the Massachusetts economy is expected to track national growth in the coming months. For both the nation and the state, there is cause for cautious optimism, arising from a number of recent positive indicators. For the state, the unemployment rate is down, and well below the national rate. Gross state product has grown at above or near the national rate for many quarters. Initial claims for unemployment compensation are falling. The MassBenchmarks Leading Economic Index anticipates faster growth in the months ahead. Nationally, most indicators of the labor market — employment growth, the unemployment rate, initial claims for unemployment compensation — are headed in the right direction. Retail sales are strong. Housing is showing some tentative signs of improvement. All these factors suggest modest but improving economic growth during 2012.

Caution must be exercised, however, due to threats beyond the state’s borders. The impact of events in Europe could affect the state both through a decline in exports and through financial contagion. Forty percent of international exports from the Commonwealth have a European destination. A slowdown in Europe or a recession there will negatively impact these export flows. A full-blown financial crisis originating in Europe, as recent history shows us, can rapidly spread throughout the global economy. The recent creep in oil prices and the possibility of supply disruptions also remain a concern. For example, if Iranian oil supplies needed to be replaced, there would be little buffer production capacity left to moderate further price increases. Other risks include further fiscal tightening from the federal government, further household deleveraging, and continuing high levels of uncertainty among households and businesses.

If these sources of caution can be navigated without mishap, economic growth is expected to continue at a modest pace. And unless labor productivity growth turns out to be more moderate than historical norms lead us to expect, a modestly growing economy will bring down the unemployment rate only very slowly. To date, the falling unemployment rate in the state masks continuing distress in some segments of its labor market and regions. Many discouraged workers have left the labor force entirely; others are working part time involuntarily. For skilled and unskilled blue collar workers alike, construction workers, and young workers in virtually every occupation, unemployment far exceeds job openings. The plight of younger workers is especially worrisome and is the result of a weak economy that is experiencing reduced job turnover due in part to older workers postponing retirement. One consequence of this is a household formation rate at an all-time low, as young adults increasingly lack the economic wherewithal to form new families. The present economy is creating a legacy of lost potential and increasing income inequality.

Massachusetts faces a future that is hopeful, cautionary, and painful. The state has many sources of strength, but pockets of weakness and severe hardship remain in many of our older cities, in segments of our labor market, and in sectors such as housing. We can only hope that a continuing economic recovery is strong and broad enough to encompass all segments of the economy.

To help identify industries and occupations in which jobs are available ― and to detect emerging labor and skills shortages ― Massachusetts developed a statewide job vacancy survey beginning in 2002. Regrettably, this survey was discontinued in 2010. The MassBenchmarks Editorial Board calls upon state officials to reinstate this survey or to develop an alternative strategy for providing critical labor supply and demand data for Massachusetts and its regions.

This summary reflects the discussion of the members of the Editorial Board of MassBenchmarks at its meeting on February 17, 2012. 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 more information, please contact:

Robert Nakosteen
Executive Editor, MassBenchmarks and Professor of Economics, UMass Amherst
(413) 545-5687

Martin Romitti
Managing Editor, MassBenchmarks
Director of Economic and Public Policy Research
UMass Donahue Institute
(413) 577-2393

Alan Clayton-Matthews
Senior Contributing Editor, MassBenchmarks
Associate Professor of Public Policy & Economics
Northeastern University
(617) 512-6224


Michael Goodman
Co-Editor, MassBenchmarks
Associate Professor of Public Policy
UMass Dartmouth
(617) 823-2770

Yolanda Kodrzycki
Co-Editor, MassBenchmarks
Vice President, Federal Reserve
Bank of Boston
(617) 973-3809

MassBenchmarks Editorial Board

Michael Best, University of Massachusetts Lowell
Katharine Bradbury, Federal Reserve Bank of Boston
Lynn Browne, Founding Editor, Former Executive Vice President, Federal Reserve Bank of Boston
Frederick Breimyer, Federal Deposit Insurance Corporation
Karl Case, Wellesley College
Peter Doeringer, Boston University
Robert Forrant, University of Massachusetts Lowell
Frank Levy, Massachusetts Institute of Technology
Christopher Probyn, State Street Bank
Jim Stock, Harvard University
Andrew Sum, Northeastern University
Paul Willen, Federal Reserve Bank of Boston

For timely and comprehensive analysis of the Massachusetts economy, please visit MassBenchmarks at www.massbenchmarks.org.