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Thursday, April 28, 2016

The Benchmarks Bulletin

Economic growth in Mass. improves in Q1,
UMass journal reports

Unemployment rate now below pre-recession low; Moderate growth expected in Q2 and Q3

Massachusetts real gross domestic product grew at an annual rate of 2.3 percent in the first quarter of 2016 according to the 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, according to the U.S. Department of Commerce, national real gross domestic product grew at an annual rate of 0.5 percent during the same period.

Recently revised data now reveal that in 2015, the state's economy expanded at an annual rate of 1.4 percent in the fourth quarter (1.4% for the US), 2.0 percent in the third quarter (2.0%), 4.9 percent in the second quarter (3.9%), and 2.0 percent in the first quarter (0.6%).

The pace of economic growth in Massachusetts picked up in the first three months of 2016 after slowing in the second half of 2015. Although underlying indicators were mixed, both employment and earnings recorded strong growth and the unemployment rate fell. Payroll employment grew at a 2.0 percent annual rate in the first quarter, up from 0.7 percent in the prior quarter. Wage and salary income, as estimated from state withholding tax revenue, expanded 5.6 percent in the first quarter, after falling 7.0 percent in the final three months of last year.

The state's headline unemployment rate – the so-called U-3 measure – stood at 4.4 percent in March, down from 4.9 percent in December, and down from 5.1 percent in March of 2015. The U.S. unemployment rate in March was 5.0 percent, the same as in December, and down from 5.5 percent in March of last year. The unemployment rate in Massachusetts is now lower than its pre-recession low of 4.6 percent in 2007.

But this overall strong performance continues to mask troubling imbalances in the labor market. The broader U-6 measure of unemployment, which includes those who are working part-time but want full-time work, as well as those who are marginally attached to the labor force, is still significantly above pre-recession levels. It inched down to 9.3 percent in March from 9.5 percent in December and 9.8 percent in March 2015. The U.S. rate in March was 9.8 percent, down from 9.9 percent in December and 10.9 percent in March 2015. Prior to the recession in 2007, the U-6 reached lows of 7.1 percent in Massachusetts and 8.0 percent in the U.S.

"Spending on items subject to the state regular sales tax declined by 6.3 percent in the first quarter, in stark contrast to the very strong growth of 9.5 percent experienced in the fourth quarter of 2015. Year over year, spending is up 3.5 percent," noted 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. "Most of the drop this quarter was due to spending on automobiles, which slowed after expanding strongly at the end of 2015, and also to weak spending on other taxable sales items in February."

The Massachusetts Department of Revenue recorded weaker bonus payouts in February, tied to stock market performance and corporate profits. Market fear tends to dampen business confidence and investment, and a prolonged market downturn may restrain consumer spending as well.

The MassBenchmarks Leading Economic Index suggests that the state economy will continue to grow at a moderate pace over the next six months, at a 3.1 percent rate in the second quarter, and a 2.5 percent rate in the third quarter of this year. The factors weighing on the state and national economic outlook have changed little from last quarter.

One factor is the tightening labor market. As there are fewer unemployed workers and as more baby boomers retire, it is becoming more difficult for employers to find the workers they need. This is reflected in historically low levels of initial unemployment claims, a sign that employers are reacting to the tightening labor market by holding on to the workers they have. Another factor is slower worldwide economic growth as China's rapid pace of economic growth has decelerated, Japan's economy is stalled, and Europe remains sluggish. A third is turmoil in financial markets. Although volatility in stock markets in reaction to falling commodity prices has calmed, there are remaining downside risk factors related to the fallout of weak global demand on corporate profits.


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
Professor and Director of Quantitative Methods
School of Public Policy and Urban Affairs
Northeastern University
(617) 512-6224

Dr. Robert Nakosteen
Executive Editor, MassBenchmarks
Professor of Economics and Statistics
Isenberg School of Management
University of Massachusetts Amherst
(413) 545-5687


Dr. Michael Goodman
Co-Editor, MassBenchmarks
Executive Director, the Public Policy Center (PPC)
Associate Professor of Public Policy
University of Massachusetts Dartmouth
(617) 823-2770

Dr. Mark Melnik
Senior Managing Editor, MassBenchmarks
Director, Economic and Public Policy Research
University of Massachusetts Donahue Institute