Study: Mass. Economy Slowed After Q1 Growth
After experience substantial growth at the beginning of the year, economic growth in Massachusetts slowed sharply — but not unexpectedly — in the second quarter as employment, earnings and spending all fell, MassBenchmarks said today.
According to the UMass Donahue Institute publication, employment in the state grew 3 percent in the first quarter, but fell 0.1 percent in the second quarter. Meanwhile, wage and salary income increased 19.8 percent in the first quarter, but fell 6.9 percent in the second. Spending on items requiring the payment of sales and motor vehicle taxes rose 11.8 percent in the first quarter yet increased a more modest 2 percent last quarter.
MassBenchmarks’ Current Economic Index found that real gross domestic product, which measures goods and services produced in the commonwealth, grew 0.8 percent in the second quarter, while the country’s GDP increased 1.7 percent. That’s compared to a first quarter in which the Bay State GDP grew 2.8 percent while the nation’s was just 1.1 percent.
“A slowdown in the second quarter was not unexpected,” MassBenchmarks said. “Fiscal austerity in the form of the expiration of the 2-percent payroll tax holiday and the federal budget cuts associated with sequestration were expected to impact state growth in the second quarter.”
The report went on to say that Massachusetts appears to be bearing a disproportionately fair share of the impact of government policy changes such as sequestration because of the state’s heavy reliance on federal funding for research and innovation industries as well as universities and hospitals.
An increase in state unemployment rate from March to June of 0.6 percentage points, to 7 percent, is especially concerning, said Alan Clayton-Matthews, MassBenchmarks senior contributing editor and associate professor of economics and public policy at Northeastern University.
"It appears that unemployment rates increased for both men and women, and these increases were concentrated among youth — those less than 25 years old, and those with less than a high school education,” he said. “However, unemployment rates also rose for those between the ages of 25 and 54, and for those with a high school diploma and some college but less than a bachelor's degree.”
MassBenchmarks said it expects the state’s economy to see stronger improvements for the rest of the year, growing at an annual rate of 3.1 percent over the next six months, with an increase of 2.8 percent in the third quarter and 3.1 percent in the fourth. However, MassBenchmarks cautioned that its outlook may be too optimistic because its Leading Index, which gauges future conditions, doesn’t consider the factors that slowed the state’s economy in the second quarter. Factors such as a rising stock market, the recovering housing market, improvements in household finances and expected growth in global technology markets help the positive outlook, MassBenchmarks said. But it’s unclear whether those positive forces will be able to overcome the federal policy issues that have slowed the economy in recent months, it said.
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