» Access the detailed report

In the second quarter of 2025, Massachusetts real gross state product (GDP) increased at an annual rate of 2.6 percent, according to MassBenchmarks, while U.S. GDP increased at an annual rate of 3.0 percent, according to the U.S. Bureau of Economic Analysis (BEA). In the first quarter of this year, Massachusetts GDP and U.S. GDP decreased at annual rates of 0.9 percent and 0.5 percent respectively, according to the BEA.

The anxiety and uncertainty of the business community and households in the first quarter diminished during the second quarter as the Trump administration softened its tariff stance, negotiations with trading partners seemed to be making progress in forestalling a trade war, and the consumer has been spared the worst of the feared tariff hikes on prices – at least for now. Although tariff policy announcements continued to be sharp and unpredictable, businesses and investors appear to have settled on interpreting this as bargaining strategy by the administration and seem to be anticipating a new normal of moderately high — but not extreme — tariff rates. By the end of the second quarter, most headline economic indicators appeared unremarkable and essentially normal. The medium and long-term impacts of the administration’s policies on tariffs, the federal budget, and immigration have yet to manifest themselves on the economy, although some trends may be beginning to emerge in recent surveys of jobs, households, and prices.

Labor markets appeared to be moderately healthy in the second quarter, but Massachusetts is showing signs of weakness relative to the U.S. Payroll employment in the second quarter grew moderately as expected in both the state and the nation, with the number of jobs growing at a 1.1 percent annual rate. The trend of job growth in Massachusetts, however, is significantly weaker than the second quarter performance suggests. Job growth has been stagnant in recent quarters. In the first quarter of the year, the number of jobs fell slightly, at a 0.1 percent annual rate, and the number of jobs in the second quarter was only 0.1 percent higher than in the second quarter of 2024. In contrast, national job growth has been steady, with the number of jobs in the second quarter 1.1 percent higher than in the second quarter of 2024.

The unemployment rate in Massachusetts has continued to rise, to 4.8% in June 2025, from 4.4% in March 2025 and 4.0% in June 2024. In contrast, the U.S. unemployment rate in June was 4.1%, the same as in June 2024. The state’s unemployment rate is typically lower than that of the U.S. given its more highly educated labor force, so this higher rate indicates some weakness.

“Although the state’s labor force has continued to grow, the concomitant rise in unemployment suggests that jobs are harder to find than previously,” 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. “Sectors that traditionally have exhibited strong job growth in the state, particularly professional business services and scientific and technical services, have been losing jobs over the last 18 months,” Clayton-Matthews added.

The softer labor market in the state is reflected in somewhat weaker wage and salary income growth than in the nation. In the second quarter, wage and salary income in Massachusetts, as estimated by MassBenchmarks from state personal income tax withholding, declined by an 8.1 percent annual rate in the second quarter. This follows a 26.8 percent annual rate of growth in the first quarter. Both these estimates reflect the increased volatility of income withholding tax revenue since the state’s 4 percent surtax on incomes over $1 million (actually $1,083,150 for tax year 2025 with inflation adjustments) became effective, so a longer trend provides a more reliable estimate.

Relative to the second quarter of 2024, this measure of wage and salary income in Massachusetts grew 3.0 percent. The BEA estimates that wage and salary income in Massachusetts in the first quarter grew at a 3.4 percent annual rate. In contrast, U.S. wage and salary income grew at a 4.9 percent annual rate in the second quarter, 5.2 percent in the first quarter, and 4.7 percent from the second quarter of 2024.

Spending on items subject to the state’s regular and motor vehicle sales taxes grew at a 7.4 percent annual rate in the second quarter, following a 1.3 percent rate in the first quarter. From the second quarter of 2024, such spending was up by 3.9 percent year over year.

Inflation, as measured by the U.S. Bureau of Labor Statistics Consumer Price Index for All Urban Consumers (CPI-U), was higher in the Boston metropolitan area than for the U.S. city average in the second quarter. The overall rate for Boston was 6.6 percent versus 1.6 percent for the U.S., and 6.7 percent for the core rate (excluding food and energy) in Boston versus 2.1 percent in the U.S. The difference appears to have been broad-based over categories, including higher inflation in food, shelter, and goods and services. Prices also rose faster in Boston than in the U.S. for the four-quarter period beginning in the second quarter of 2024. Overall inflation in Boston was 3.3 percent versus 2.5 percent in the U.S., and core inflation in Boston was 3.5 percent versus 2.8 percent in the U.S. Again, the difference was broad-based.

Although the medium and long-term effects of the administration’s policies will take time to be reflected in economic indicators, some impacts are beginning to appear in job and labor force surveys for Massachusetts.

• Federal government payroll employment fell by a modest 2 percent between April and June.
• The negative trend in employment in scientific research and development services reflect weaknesses in the pharmaceutical and biotechnology sector, but the Trump administration’s cuts in federal research and development are likely to intensify this trend.
• The U.S. Census Bureau’s Current Population Survey for Massachusetts is beginning to reflect the administration’s immigration policies. While these data are subject to substantial sampling variation that make emerging trends difficult to discern, they are consistent with a decline in the state’s foreign born labor force in recent months, and a decreased flow of new immigrant arrivals into the state this year.
• Durable goods prices, as measured by the U.S. BEA’s Personal Consumption Price Indices, are now growing on a year-over-year basis, after declining since mid-2023. This is the sector most heavily impacted by foreign trade and tariffs.

The leading index is projecting that the rate of growth in Massachusetts GDP will continue to be moderate over the rest of the year, with annualized growth rates of 2.0 percent in the third quarter, and 1.9 percent in the fourth quarter. The Wall Street Journal’s survey of economists from early July is projecting rates of U.S. GDP growth of 0.9 percent in the third quarter and 1.1 percent in the fourth quarter.

» Access the detailed report