Massachusetts real gross domestic product grew at an annual rate of 3.5 percent in the third quarter of 2013 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 grew at an annual rate of 2.8 percent. In the second quarter, economic activity in Massachusetts grew at a 1.7 percent annual rate, revised up from 0.8 percent, versus a 2.5 percent pace of expansion for the U.S. In the first quarter, the Massachusetts economy expanded at a 3.4 percent annual rate as compared to 1.1 percent for the U.S. The improvement in the third quarter is due to slow, but better job growth, rising wage and salary incomes, and a higher rate of spending on items subject to sales taxes. A recovering housing market and consumer and business spending are driving economic growth, providing some relief from the considerable federal fiscal drag in the form of mandated sequestration spending cuts and higher payroll taxes than last year that continues to slow both state and national growth.

"Our estimate of the state's economic growth in the third quarter is based on incomplete data because of a delay in the state's employment report for September until November 22, a direct result of the shutdown of the federal government last month," 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 Indexes. 

"Of the four Massachusetts economic indicators used to estimate state GDP growth, only September payroll employment is missing. To fill that gap, we have estimated the missing data using the U.S. employment report for September and the historical average relationship between national and Massachusetts state employment. Applying this method, we estimate that Massachusetts added a modest 1,000 jobs in September, indicating that state employment expanded at an annualized rate of growth of 0.7 percent in the third quarter. In contrast, during the second quarter, payroll employment in the Bay State declined at an 0.3 percent annualized rate," Clayton Matthews added.

Based on state withholding and sales taxes, nominal wage and salary income increased at a 2.9 percent annualized rate in the third quarter, and nominal spending on items subject to regular sales taxes and automobiles increased at a brisk 6.5 percent annualized rate. In contrast, wage and salary income in the second quarter declined by 6.9 percent, and spending increased by a more modest 2.0 percent.

The MassBenchmarks Leading Economic Index for September was 3.4 percent, and the three-month average for July through September was 3.6 percent. The leading index is a forecast of the growth in the current index over the next six months, expressed at an annual rate.

According to the Leading Index, economic growth is estimated to continue to improve over the next six months, growing at an annualized rate of 3.4 percent from October through next March. The indicators on which the Leading Index is based, however, do not incorporate the effects of the federal government shutdown and its aftereffects (including the continuation of sequestration spending reductions), since most of the information on which the index is based was collected through September, before the shutdown began. Therefore, fourth quarter growth will likely be several tenths of a percentage point lower than the 3.4 percent projected by the Index.

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 a.clayton-matthews@neu.edu		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 nakosteen@isenberg.umass.edu
Dr. Michael Goodman Co-Editor, MassBenchmarks Associate Professor of Public Policy and Chair Department of Public Policy University of Massachusetts Dartmouth (617) 823-2770 mgoodman@umassd.edu		Daniel Hodge Managing Editor, MassBenchmarks Director, Economic and Public Policy Research University of Massachusetts Donahue Institute (413) 577-2393 dhodge@donahue.umassp.edu