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In the second quarter of 2024, Massachusetts real gross state product (GDP) increased at an annual rate of 3.3 percent, according to MassBenchmarks, while U.S. GDP increased at an annual rate of 2.8 percent, according to the U.S. Bureau of Economic Analysis (BEA). According to the BEA, in the first quarter, Massachusetts GDP grew at an annual rate of 1.0 percent while U.S. GDP grew at a 1.4 percent rate.

The higher-than expected boost in second quarter growth came as a pleasant surprise following the more modest growth experienced during the first quarter. In Massachusetts, this increase in growth was supported by moderate payroll employment growth, high withholding and sales tax receipts — which imply high wage and salary income and spending growth, low unemployment rates, and a growing labor force.

Labor market indicators, while giving mixed signals, were mostly positive in the second quarter. Payroll employment growth slowed but remained positive, expanding at a 0.6 percent annual rate in Massachusetts in the second quarter as compared to 1.5 percent for the U.S. In the first quarter, payroll employment grew at a 2.0 percent annual rate in both Massachusetts and the U.S. Relative to the second quarter of last year, employment was up 0.7 percent in Massachusetts and 1.7 percent in the U.S. in Q2 2024.

The moderate employment growth estimated by the payroll survey may, however, be overstating job growth in Massachusetts. Q2 employment growth in Massachusetts was boosted by a gain of 19,000 employees in June, but 8,700 of that gain came from state government. June is a month that is subject to large seasonal-adjustment errors depending on when many state employees in educational settings finish the school year, so the actual employment gain in June may have been closer to 10,000. For some context, over the past 12 months job growth in Massachusetts has averaged 3,350 jobs per month.

Indicators of unemployment and labor force participation were mixed. On the positive side, the unemployment rate remained low, at 3.2 percent in Massachusetts in June as compared to 4.1 percent for the U.S. This represents a slight rise from March, when the unemployment rate in Massachusetts stood at 2.9 percent in Massachusetts and 3.8 percent for the U.S. In June 2023, the unemployment rate was 3.3 percent in Massachusetts and 3.6 percent in the U.S.

Initial unemployment claims, as measured by the number of persons receiving a first week of payments, fell markedly in the second quarter to a near-historic low.

The state’s labor force and labor force participation rate increased in the second quarter, with the labor force growing at a 3.7 percent annual rate. The labor force participation rate rose from 64.9 percent in March to 66.7 percent in June. In June 2023, the state’s labor force participation rate was 65.1 percent.

There were also some discouraging labor market developments during the second quarter. Notably, the Massachusetts U-6 unemployment rate — a broader measure of unemployment that includes persons who are working part-time but want a full-time job and persons who have given up looking for work (the marginally-attached), rose from 7.1 percent in March to 7.5 percent in June. In the U.S. the corresponding rate rose from 7.3 percent in March to 7.4 percent in June. In June 2023, the rate was 5.9 percent in Massachusetts and 6.9 percent in the U.S. In Massachusetts, the number of involuntary part-time workers and the number of marginally attached workers both rose in the second quarter.

State tax revenues in the second quarter are consistent with strong growth in wage and salary income and in spending on items subject to the state regular sales and motor vehicle taxes. Based on personal withholding taxes, nominal Massachusetts wage and salary income grew at a 16.2 percent annual rate in the second quarter. Withholding taxes can fluctuate markedly from quarter to quarter, so the actual growth was likely lower than that reported. Nevertheless, it is likely that income growth was strong. The BEA reports that U.S. wage and salary income grew at a 5.3 percent annual rate in the first quarter. In the second quarter, the BEA estimates that wage and salary income grew at a 5.2 percent rate in Massachusetts and 5.6 percent in the U.S. Relative to the second quarter of last year, wage and salary income was up 5.1 percent in Massachusetts and 4.8 percent in the U.S.

Nominal spending on items subject to the state regular sales and motor vehicle taxes grew at a 17.5 percent annual rate in the second quarter, after rising at a 3.0 percent rate in the first quarter. Relative to the second quarter of last year, such spending was up 2.8 percent.

According to the Bureau of Labor Statistics (BLS), the Boston metro area CPI rose at a 7.3 percent annual rate in the second quarter, as compared to 2.8 percent for the U.S. “Massachusetts continues to face serious cost-of-living challenges,” 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. “Rising rents and housing costs help to explain the higher inflation readings for the Boston area,” Clayton-Matthews added.

Core prices, which exclude food and energy, exhibited a similar pattern, rising 8.5 percent at an annual rate in the second quarter in the Boston area versus 3.2 percent for the U.S. Relative to the second quarter of last year, the overall CPI was up 4.0 percent in the Boston metro area versus 3.2 percent for the U.S. The corresponding (over-the-year) rates of growth for core prices were 4.7 percent in Boston and 3.4 percent for the U.S.

The outlook over the rest of the year is for state and national GDP to continue to grow, but at a slower rate than in the second quarter. The Wall Street Journal survey of economists taken in early July is projecting national GDP growth at annual rates of 1.6 percent in the third quarter and 1.5 percent in the fourth quarter, based on the average of the roughly 60 economists surveyed. Weak consumer expectations and high interest rates are expected to continue to weigh on economic growth, especially as excess COVID-era savings are depleted, consumer debt is rising, and some slack is beginning to appear in the labor market.

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