New England Public Radio

Massachusetts Economic Growth Up, but Might Not Continue

The U.S. economy grew slower than expected in the first quarter of 2013. Massachusetts on the other hand, exceeded expectations. That’s according to a report published Friday by the UMass Donohue Institute.

The state’s gross domestic product (GDP) grew at a rate of 3.9 percent over the first three months of the year, well above the national rate of 2.5 percent. UMass Economics Professor Robert Nakosteen says that growth is due to a strong high-tech economy in the state, a recovering housing market, and an up-tick in consumer spending. But the state’s unemployment rate has stayed about the same -around 6.5 percent- for the past year. And Nakosteen says that’s not likely to improve, partly due to recent federal budget cuts.

“The infamous sequester, and the increase in the social security payroll tax, are both now providing real headwinds to further economic growth, so there has not been much improvement in our labor force of late, and the prospects are not good for the near-term future.”

Nakosteen says he expects the state’s economic growth to slow over the next six months – closer to 3 percent. That’s still positive and nowhere near recession levels, he says, but not as strong as the early part of this year.

Mass. Economy No Longer Outpaces Nation’s, Could Get Hurt by “Fiscal Cliff”

The Massachusetts economy is no longer growing faster than the national economy, according to MassBenchmarks, a Bay State economics journal published by the Donahue Institute at UMass. 

The state’s economy had been outpacing the country as a whole since the beginning of the recession. Municipal layoffs, slowing economic conditions globally, and a variety of other factors have brought Massachusetts down to earth says Robert Nakosteen, editor of the journal, and a professor of economics at UMass Amherst. He says lagging growth in Europe and China, which are trading partners to many high-tech businesses in eastern Massachusetts, is rubbing off in that part of the state.  But, he says, the western part of the state is more immune to global volatility.

“We have really lagged behind the eastern part of the state in our economic growth out here in the west, but we’re not really experiencing the volatility that the eastern part of the state is now experiencing.”

Nakosteen says western Massachusetts has also been immune to the east’s growth. He says a much broader turnaround in the world economy would be needed for significant economic growth to take hold in western Massachusetts, and a global downturn could harm the region as well. 

Another looming concern to the state’s economy is the so-called “fiscal cliff” – the combination of federal tax increases and budget cuts scheduled to automatically go into effect at the end of the year. Nakosteen says proposed defense cuts could harm the Bay State’s defense sector in the long-term. 

“The effects would be serious, they would be long-term. It’s an event that doesn’t have to take place, it’s an event that, if the politicians at the federal level were to act responsibly, could be avoided, and we’re hoping that’s the case.”
 
Nakosteen says he expects congress and the president will take action to avoid the fiscal cliff, but he doubts anything will be done until after November’s election.