UMass Donahue Institute
View web version Wednesday, January 30, 2013
The Benchmarks Bulletin
Massachusetts economy expands modestly in Q4, UMass Journal Reports
Data revisions could change our understanding of economic conditions, analysts caution

Massachusetts real gross domestic product increased at an annual rate of 1.0 percent in the fourth quarter of 2012 according to the latest MassBenchmarks Current Economic Index released today by MassBenchmarks, the journal of the Massachusetts economy published by the UMass Donahue Institute in collaboration with the Federal Reserve Bank of Boston.

In contrast, U.S. real gross domestic product increased at an annual rate of -0.1 percent in the fourth quarter, according to the Advance Estimate released earlier today by the US Bureau of Economic Analysis. In the first three quarters of 2012, we now estimate that the state's economy grew at revised annual rates of 2.0, 2.6 and 2.9 percent respectively. The U.S. economy grew at annual rates of 2.0, 1.3, and 3.1 percent during the same period.

Over the last year, from the fourth quarter of 2011 to the fourth quarter of 2012, MassBenchmarks estimates that Massachusetts real gross state product grew 2.1 percent, while the U.S. economy grew 1.5 percent. From December 2011 to December 2012, the U.S. Bureau of Labor Statistics estimates that payroll employment in Massachusetts grew 1.6 percent, outpacing the U.S., which reportedly grew 1.4 percent. Official employment revisions are expected in coming weeks and, based on the scale of the revisions experienced in recent years, could significantly alter our understanding of the Commonwealth's economic performance in 2012.

Based on what we know today, the Commonwealth appears to be poised for faster growth in 2013 according to the MassBenchmarks Leading Economic Index. The Leading Index for December was 3.6 percent, and the three-month average for October through December was 3.5 percent. The leading index is a forecast of the growth in the current index over the next six months, expressed at an annual rate. Thus, it indicates that the economy is expected to grow at an annualized rate of 3.6 percent over the next six months (through June 2013).

Despite a faltering European economy, falling merchandise exports, weak national and international markets for information technology products, and policy uncertainty related to the so-called "fiscal cliff," the state's economy managed to grow moderately in the final quarter of 2012. If initial state employment estimates hold up following the upcoming "benchmark revisions" process, that strength came primarily from employers who added workers despite these headwinds. Payroll employment in Massachusetts increased at an estimated 1.6 percent annualized rate in the fourth quarter, following a meager 0.1 percent rate of growth in the third quarter.

The methodology for the leading index takes no account of looming debates over the extension of the debt ceiling and national budget debates (including sequestration), except to the extent that expectations about spending cuts or other actions are reflected in the indicators that are used to construct the Index. In this regard, recent employment gains, spending on motor vehicles, and a surging stock market — the Bloomberg stock index for Massachusetts is up nearly 10 percent from the beginning of December (December 3rd through January 23rd) — account for the relatively optimistic outlook.

"There are good reasons to be concerned, however, that our current assessment of economic conditions is too sanguine," noted Dr. Alan Clayton-Matthews, MassBenchmarks Senior Contributing Editor and Associate Professor of Economics and Public Policy at Northeastern University, who compiles and analyzes the Current and Leading indices. "Wage and salary income, as estimated from state withholding tax receipts, decreased somewhat between the third and fourth quarters, although they were higher than the year before," Clayton-Matthews added. Spending on items subject to the regular sales and motor vehicle taxes in the fourth quarter grew modestly, edging up 1.1 percent at an annualized rate over the prior quarter.

MassBenchmarks is published by the University of Massachusetts Donahue Institute in cooperation with the Federal Reserve Bank of Boston. The Donahue Institute is the public service, outreach, and economic development unit of the University of Massachusetts Office of the President. The current and leading indexes are compiled and analyzed by Dr. Clayton-Matthews, Associate Professor of Economics and Public Policy at Northeastern University and released quarterly by MassBenchmarks.

For a full breakdown of the latest indexes, click here. A comprehensive analysis of the state of the Massachusetts economy can be found in the most recent issue of MassBenchmarks.

For more information please contact:

Dr. Alan Clayton-Matthews
Senior Contributing Editor, MassBenchmarks
Associate Professor of Economics
and Public Policy
School of Public Policy and Urban Affairs
Northeastern University
(617) 512-6224

Dr. Robert Nakosteen
Executive Editor, MassBenchmarks,
and Senior Research Faculty Advisor,
UMass Donahue Institute
Professor of Economics and Statistics
Isenberg School of Management
University of Massachusetts Amherst
(413) 545-5687


Dr. Michael Goodman
Editor, MassBenchmarks
Associate Professor of Public Policy and Chair
Department of Public Policy
University of Massachusetts Dartmouth
(617) 823-2770



For timely and comprehensive analysis of the Massachusetts economy, please visit MassBenchmarks a