Mass. economy grows by 6 percent
Photo | Courtesy of Wormtown Brewery
Wormtown Brewery is expanding its operations and is part of a 6 percent Mass. economy growth in the third quarter.
While consumer spending has been "surprisingly weak," the Massachusetts economy jolted forward in the third quarter, with real gross domestic product surging 5.9 percent and employment growth also outpacing the national rate, according to a new report.
MassBenchmarks, an economic journal published by the UMass Donahue Institute with the Federal Reserve Bank of Boston, reported Friday that employment in the second quarter grew by a 2.1 percent annual rate in Massachusetts, compared to 1.2 nationally.
The 5.9 percent third quarter real GDP growth rate followed a 4.9 percent pace in the second quarter in Massachusetts, and 1.1 percent in the first quarter.
Looking ahead, the MassBenchmarks Leading Economic Index estimates the state economy is expected to continue growing, but at lower annualized rates - 3.3 percent in the fourth quarter and 3 percent in the first quarter of 2018.
The growth comes amid fierce battles in Washington D.C. over the agenda being pushed by Republican President Donald Trump and the GOP-controlled Congress, and as lawmakers on Beacon Hill and Gov. Charlie Baker hope to break free from a prolonged period of slow growth in state tax revenues.
The journal's authors, citing U.S. Bureau of Economic Analysis (BEA) data, reported real gross domestic product grew at a 3 percent annualized rate during the third quarter nationally, in part due to the drag on economic activity caused by Hurricane Harvey and Hurricane Irma, particularly in Texas and Florida.
"The Commonwealth exhibited very strong employment and earnings growth during the third quarter," according to MassBenchmarks, which estimated based on state withholding tax revenues that wage and salary income in Massachusetts grew at a 10.5 percent annual rate in the third quarter, compared to a projected 3.8 percent national rate during the same period - a BEA estimate of national wage and salary income growth is scheduled for Monday.
The Massachusetts unemployment rate in September was 3.9 percent, while the national rate was 4.2 percent.
"Despite these low unemployment rates and anecdotes about a shortage of workers, employment growth continues unabated without clear signs of wage rate pressures," Alan Clayton-Matthews, MassBenchmarks senior contributing editor and an economics professor at Northeastern University, said in a statement. "It may be that the rapid growth in wage and salary income in Massachusetts is signaling the beginning of an acceleration in wage rates, but it's too early to tell. Tax revenues can fluctuate from quarter to quarter for a variety of reasons that do not reflect an underlying trend."
After getting burned by overly optimistic tax revenue estimates the last two fiscal years, Baker and the Legislature are hoping for a rebound in revenues in fiscal 2018. Over the first three months, collections are beating expectations but Baker remains wary and this week said he's not going to release funding for projects earmarked in the state budget by lawmakers until he's more comfortable with the state's financial position.
The MassBenchmarks report offered evidence that might support a cautious spending approach.
As measured by regular sales tax receipts and motor vehicle sales taxes, spending has been "surprisingly weak given strong income growth and the surging stock market," the report said. Spending on taxable items declined in the third quarter by 3.3 percent, and grew by just 1.7 percent between the third quarter of 2016 and the third quarter of 2017.
In an interview, Clayton-Matthews said the state's recent economic growth rates have been propelled by employment growth, rising wages and salaries, and an increase in productivity.
"Productivity is output per worker," he said, noting better capital or more skills can increase productivity. Increased business investments in machinery, he said, may have been a factor in boosting productivity recently.
From September 2016 to September 2017, Massachusetts has added 62,300 jobs, according to the Bureau of Labor Statistics.
"I'm pleasantly surprised I guess that the state is still able to add jobs at the rate that it has been adding throughout this recovery in the face of what has been anecdotal accounts of difficulty finding workers," Clayton-Matthews said, speculating Massachusetts may be pulling workers from neighboring states.
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