Closing Thoughts Alan Clayton-Matthews, economist at the University of Massachusetts Boston
Taking the state's economic temperature
How would you characterize Massachusetts' economic growth last year?
Clayton-Matthews: Last year was steady, but rather slow when compared to prior expansions of the 80s and 90s. But yet it still was the best year we've had since the last recession, which was after the burst of the tech bubble in 2000.
What are the strongest sectors in the Massa-chusetts economy? What are the weakest?
Clayton-Matthews: The strongest are ones related to high tech, science- and knowledge-related services. So, that would include the overall super sector of business services. Within that there is engineering, consulting, scientific research and development and software. We have a very strong medical science sector that includes medical devices, biotech and pharmaceuticals. And our information technology sector, both in services and manufacturing, is strong. Aside from the medical science sector, we also have the medical services sector, which includes hospitals, doctors and nurses. Education is still a strong and growing sector for the state as well.
As for the weakest, essentially, it is the residential housing market and anything related to it. That would include new construction employment and retail spending. In retail, it's especially areas related to new household formation, so sales of things like new furniture are very weak. I guess you should add to that too manufacturing, but perhaps with an asterisk. We are continuing to lose manufacturing employment, but only at a slow rate, not like the rapid losses we saw during the last recession. That doesn't mean manufacturing is not growing in terms of output. Productivity gains are such that output is growing, but employment is shrinking very slowly.
Can you explain how productivity can grow while employment declines?
Clayton-Matthews: For example, look at state merchandise exports, which are almost entirely manufacturing related. They've grown 60 percent since the beginning of January 2002. That's the value of shipments produced by the state's manufacturers that are sold abroad. And over that same time, manufacturing employment has declined. That shows the contrast between growth and output and that's due to productivity increasing.
Is the housing market decline a good thing or a bad thing for the state?
Clayton-Matthews: It's a good thing. It's certainly bad for individual households who are really stretched now, especially if they have sub-prime mortgages. But for the economy as a whole, it's a good thing because the cost-of-living in Massachusetts is very high, primarily due to the cost of housing. Housing prices, even accounting for higher incomes in the state, are way out of line with the rest of country.
That means it's difficult for young people to find housing to stay in this state or to move to this state. So, housing prices have been a clamp on our labor force growth. Falling housing prices will allow our housing costs to be more in line with the rest of the country and that will help repair the cost-of-living disadvantage that we have.
How is 2007 shaping up for the state's economy?
Clayton-Matthews: It's been an interesting year. In the Benchmarks report I suggested growth would slow in 2007 from 2006 essentially because of the downturn in housing. That still appears to be an accurate statement, although the first quarter of growth in 2007 was quite strong, especially when you look at indexes like payroll employment, which had very strong growth. But in the past couple of months things have slowed down quite dramatically. The housing market continues to weaken. The economy is slowing down here as it is nationally. The Massachusetts economy will be growing at about a 2 percent rate over the next six months.
What's your favorite part of being an economist? What's your least favorite part?
Clayton-Matthews: My favorite part of being an economist is that conditions are always changing. There's always a story to be found by combining many sources of information, and distilling it into a clear signal of where the economy is going. It's like predicting the weather, except economists are much worse than meteorologists. The hard part is the difficulty in trying to predict the future. I like to make a comparison to meteorology. We're like a meteorologist stuck in a room without windows, told what the weather was last week, and asked to make a forecast. It's a difficult job.
This interview was edited for content and length by Christina H. Davis
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