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In the fourth quarter of 2024, Massachusetts real gross state product (GDP) increased at an annual rate of 1.1 percent, according to MassBenchmarks, while U.S. GDP increased at an annual rate of 2.3 percent, according to the U.S. Bureau of Economic Analysis (BEA). According to the BEA, in the third quarter of this year Massachusetts GDP grew at a 2.3 percent annual rate while the U.S. GDP grew at a 3.1 percent annual rate. From the fourth quarter of 2023 to the fourth quarter of 2024, Massachusetts GDP grew by 2.7 percent, while U.S. GDP grew by 2.5 percent. The higher growth rate for Massachusetts was due to a 5.6 percent annualized growth for Massachusetts in the first quarter of 2024 as compared to 1.6 percent for the U.S. In each of the last three quarters of the 2024, the Massachusetts economy grew more slowly than that of the U.S.

The Massachusetts economy appears to have shifted into a lower gear, with stagnant employment growth, rising unemployment, and tepid spending on items subject to regular sales taxes. This is in contrast to the U.S. economy, which may be decelerating, but is still growing at a moderate pace.

Payroll employment in Massachusetts fell at a 0.3 percent annual rate in the fourth quarter from 0.7 percent annualized growth in the third quarter. This contrasts with U.S. employment, which grew at annualized rates of 1.1 percent in the third quarter and 1.2 percent in the fourth quarter. The unemployment rate in the state was 4.1 percent in December, matching the national rate. This is consistent with a weaker labor market here than in the nation, since Massachusetts typically has a lower unemployment rate than the U.S. due to its more highly educated workforce. A year prior, in December 2023, the unemployment rate was 3.2 percent in Massachusetts and 3.7 percent in the U.S., more typical of the differential in normal circumstances. Unemployment of Massachusetts residents rose by 12,900 in the fourth quarter, following a rise of 25,100 in the third quarter, which accounts for the rise in the unemployment rate of nearly one percentage point from December 2023 to December 2024.

The rise in unemployment in Massachusetts does not appear to be due to an increase in layoffs, as for example first-time unemployment claims do not exhibit a consistent, rising trend. Unemployment rose even as the labor force grew at an annual rate of 1.6 percent in the fourth quarter, following a rise of 5.9 percent in the third quarter. Given the small sample size of the Bureau of Labor Statistics (BLS) household survey for Massachusetts, these data are “noisy” and subject to some statistical uncertainty, making it difficult to discern the source of the increased number of persons looking for work. But it is clear that jobs are becoming more difficult to find. 

Spending on items subject to the Massachusetts regular and motor vehicle sales taxes declined at a 2.3 percent annual rate in the fourth quarter, after rising by a 9.9 percent rate in the third quarter. (Like other indicators in this report, this measure is seasonally adjusted.) Compared to the fourth quarter of 2023, spending in the fourth quarter of 2024 was up 2.7 percent. This spending reflects spending on taxable goods — almost all services are exempt – and includes spending from businesses and households. “The tepid growth in spending is consistent with other labor market conditions and estimated economic growth,” 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. “Notably, the motor vehicles portion of this spending was robust in the fourth quarter, rising at a 23.8 percent annual rate. The implied automobile purchases rose in each month throughout the quarter, consistent with anecdotes of consumers making pre-emptive purchases to avoid expected tariff-based increases in auto prices,” Clayton-Matthews added.

Wage and salary income in Massachusetts, based on state personal income withholding taxes, rose at an annual rate of 9.4 percent in the fourth quarter after falling by 11.7 percent on an annual basis in the third quarter. In contrast, the BEA’s estimate of Massachusetts wage and salary income growth in the third quarter was 1.8 percent on an annual basis. With the state’s new surtax on incomes over $1 million, in force since the beginning of 2023, monthly and quarterly fluctuations in this measure of income have increased, making it more difficult to interpret short term trends. This makes it more important to focus on trends longer than a few months. Relative to the fourth quarter of 2023, this measure of wage and salary income was up 6.5 percent. U.S. wage and salary income growth was 5.9 percent on an annual basis in the fourth quarter and 3.7 percent in the third quarter. From the fourth quarter of 2023 to the fourth quarter of 2024, U.S. wage and salary income grew 5.7 percent.

Inflation in the Boston metropolitan area according to the BLS’s CPI-U headline measure was subdued in the third and fourth quarters of 2024, with overall prices rising at an annual rate of 1.0 percent in the fourth quarter and falling by 0.2 percent in the third quarter. Core inflation — excluding food and energy — in the Boston area was 0.6 percent on an annual basis in the fourth quarter and minus 0.1 percent in the third quarter. These rates were lower than corresponding rates for the “all cities” measure for the U.S., consistent with a weaker state economy in the last half of 2024. On a year-over-year basis, inflation rates in Boston and the U.S. were similar. From the fourth quarter of 2023 to the fourth quarter of 2024, overall prices rose 3.0 percent and core prices 3.6 percent in Boston, versus corresponding rates of 2.7 percent and 3.3 percent for the U.S.

The leading index is projecting that the rate of growth in the Massachusetts economy will continue to be slow and trail that of the U.S. economy. Massachusetts real GDP is expected to grow at an annual rate of 0.7 percent in the first quarter and 1.0 percent in the second quarter of this year. The Wall Street Journal forecast of economists from early January is for U.S. GDP growth of 2.2 percent in the first quarter and 2.0 percent in the second quarter.

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