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In the second quarter of 2026, Massachusetts real gross state product (GDP) increased at an annual rate of 2.0 percent, according to MassBenchmarks, while U.S. GDP increased at an annual rate of 1.5 percent, according to the U.S. Bureau of Economic Analysis (BEA). In the first quarter of 2026, BEA estimates now show Massachusetts GDP grew at a 2.4 percent annual rate and U.S. GDP grew at a 2.1 percent rate.

Growth held its moderate pace through the first half of the year despite persistent geopolitical and market uncertainty, including the on-and-off war with Iran, swings in oil prices, and questions about the sustainability of the AI investment cycle. The Massachusetts and U.S. economies are now expanding moderately, with the state’s small growth advantage roughly matching its productivity differential.

Payroll employment growth in the first half of the year was similar, with employment expanding at a 1.1 percent annual rate in Massachusetts and a 0.9 percent rate in the U.S. in the second quarter, following 0.3 percent employment growth in both economies in the first quarter. Job growth remains modest for an economic expansion, but this reflects labor supply constraints more than weak labor demand. The Massachusetts labor force declined at a 3.2 percent annual rate between January and June, compared with a 1.6 percent decline for the U.S. Labor force participation rates fell 0.9 percentage points in Massachusetts and 0.6 percentage points in the U.S. over the same period. Participation among prime-aged workers (25 to 54) has held roughly flat at high levels. The decline is concentrated among workers 55 and older, a substantial share of which reflects the aging of the workforce into cohorts with lower participation rates.

"The state's labor force has continued to shrink, but productivity gains — running about half a percentage point above the corresponding U.S. measure — continue to keep Massachusetts growth slightly ahead of the nation's," noted Alan Clayton-Matthews, Senior Contributing Editor and Professor Emeritus of Economics and Public Policy at Northeastern University, who compiles and analyzes the Current and Leading Indexes for MassBenchmarks. "Relatively slow job growth reflects the demographics of an aging workforce, years of falling fertility rates, and immigration policies that sharply reduced net international migration," Clayton-Matthews added. 

Headline unemployment rates remain relatively low and fell in the second quarter. The Massachusetts U-3 rate was 4.4 percent in June, down from 4.7 percent in March and equal to the June 2025 rate. The corresponding U.S. rates were 4.2 percent in June, 4.3 percent in March, and 4.1 percent in June 2025. The broader U-6 measure, which includes involuntary part-time workers and persons marginally attached to the labor force, tells a consistent story: 7.2 percent in Massachusetts in June, down from 7.5 percent in both March and June 2025, versus 7.9 percent for the U.S. in June. The gap between U-6 and U-3 indicates that some slack remains — slack that could support additional hiring if employers moved to fill it. Notably, the Massachusetts U-6 rate fell as low as 4.4 percent at the peak of the dot-com boom in 2001.

Massachusetts wage and salary income in the second quarter, as estimated by MassBenchmarks from state personal income withholding tax revenues, fell at a 5.9 percent annual rate. This follows a better-than-usual bonus season rise in the same measure of 31.1 percent in the first quarter, so the fall in the second quarter simply reflects a move back towards the trend of rising wage and salary income rather than a concerning fall in income – and that trend is strong. Relative to the second quarter of 2025, this measure was up 7.5 percent as of the second quarter of this year. The BEA estimates that Massachusetts wage and salary income grew at a 2.8 percent annual rate in the first quarter, and second-quarter estimates from the BEA are not yet available. The much lower first-quarter estimate from the BEA (relative to MassBenchmarks) reflects differences between the data sources in how bonus income is apportioned over the year. For the United States, the BEA estimates that wage and salary income grew at a 3.8 percent annual rate in the second quarter, 3.4 percent in the first quarter, and 4.0 percent year-on-year from the second quarter of 2025 to the second quarter of 2026.

Consumer spending rebounded sharply in the second quarter. Spending on items subject to the Massachusetts regular and motor vehicle sales taxes rose at a 28.0 percent annual rate in the second quarter on a seasonally adjusted, nominal basis, reversing the 9.2 percent decline in the first quarter. Between the second quarter of 2025 and the second quarter of 2026 this measure was up 5.9 percent, the strongest reading since 2022.

Inflation in the Boston metropolitan area ran meaningfully hotter than in the U.S. during the second quarter. The Consumer Price Index for All Urban Consumers (CPI-U) rose at a 13.1 percent annual rate in Boston on a seasonally adjusted basis, versus 7.9 percent for the U.S. Core inflation, which excludes food and energy, was 7.9 percent in Boston and 2.9 percent in the U.S. in this same period. The Boston index is published only for odd months and so does not yet reflect the June drop in gasoline prices; the New England CPI-U, which is monthly and includes Greater Boston (roughly half the regional economy), rose 9.7 percent overall and 5.7 percent core, offering a partial correction. The Boston-U.S. gap appears to be driven largely by housing, with shelter costs in Boston rising 2.8 percent between March and May alone. Year over year, the differential is much smaller: overall CPI up 3.5 percent in Greater Boston versus 3.8 percent in the U.S., with core CPI up 2.2 percent versus 2.7 percent.

The MassBenchmarks Leading Economic Index projects Massachusetts GDP growth of 2.3 percent in the third quarter and 2.5 percent in the fourth (annual rates). The Wall Street Journal’s July survey of economists projects U.S. GDP growth of 2.0 percent in the third quarter and 2.1 percent in the fourth. Both forecasts reflect a balanced view of risks: the war with Iran, inflation pressures, stimulus from last year’s tax legislation, continued AI-related investment, the resilience of consumer spending, and ongoing adjustments to tariff and other shifts in national policy.

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