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In the first quarter of 2026, Massachusetts real gross state domestic product (GDP) increased at an annual rate of 3.2 percent, according to MassBenchmarks, while U.S. GDP increased at an annual rate of 2.0 percent, according to the U.S. Bureau of Economic Analysis (BEA). In the fourth quarter of last year, these rates of growth were 1.2 percent for Massachusetts and 0.5 percent for the U.S., according to the BEA.
 
 A federal government shutdown in the fourth quarter of last year accounted for that quarter’s slower growth. The war with Iran bean at the end of February and so had little effect on growth in the first quarter of this year. Analysts expect the war will have a negative impact on growth due to supply disruptions. The magnitude of these effects will depend on how long the Strait of Hormuz is closed, which is uncertain. Even before the war the economy was expected to grow more slowly this year due to a drop in labor force growth related to an aging population and sharp reductions in net international migration.

Payroll employment barely increased in the first quarter, with a 0.3 percent annualized increase in Massachusetts, and a 0.3 percent increase in the U.S. Employment was also stagnant in the fourth quarter of 2025. In Massachusetts, employment in the first quarter was 0.4 percent less than in the first quarter of last year; in the U.S., it was up only 0.2 percent over the same period. This low-to-no growth in employment situation is expected to continue. The mean U.S. employment projection over the next four quarters by the economists surveyed by the Wall Street Journal in April is only a third of one percent for the U.S. In Massachusetts, revised estimates of Massachusetts labor force and resident employment have been declining at a slow rate since early 2025, and population projections for Massachusetts residents 16 years and older – the working age population – portend stagnant labor force growth.

“Jobless growth is consistent with all or almost all economic growth being driven by productivity gains,” 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. “A rough but good proxy for this is growth in real GDP per payroll worker. For Massachusetts this productivity measure grew 3 percent in 2025, and in recent quarters this measure of productivity growth is trending half a percentage point higher than the corresponding measure for the U.S., “Clayton-Matthews added.  

The unemployment rate in Massachusetts continues to be more elevated than that of the U.S., at 4.7 percent in March for Massachusetts as compared to 4.3 percent for the U.S. in March. This differential between the state and the nation is the reverse of the normal pattern. Typically, Massachusetts has a lower unemployment rate due to a higher proportion of college educated adults and this reversal is an indicator of some weakness in the state’s labor market relative to the nation. Nevertheless, initial unemployment claims continue to be at low levels and consistent with the low level of unemployment claims nationally. The broader U-6 unemployment measure, which counts as unemployed part-time workers who want full-time work and persons who want a job but haven’t looked in the last four weeks, stood at 7.8 percent in March for Massachusetts, slightly below the 8.0 percent for the U.S. In Massachusetts, the U-6 rate was 7.4 percent in March 2025. The 0.4 percentage point rise over the year reflects primarily the corresponding rise in the headline U-3 rate, from 4.3 percent in March 2025 to 4.7 percent in March 2026. In the U.S., both the U-3 and U-6 rates in March were up by 0.1 percentage point from the prior year.

Wage and salary income in Massachusetts in the first quarter, as estimated by MassBenchmarks from state personal income withholding tax revenues, grew at a 31.1 percent annual rate. Withholding tax revenues have tended to be quite volatile from month to month and quarter to quarter, but the trend has also been strong. The BEA estimates that wage and salary income grew at 6.5 percent annualized rate in Massachusetts in the last quarter of last year, and this withholding tax-based measure for Massachusetts is up 6.4 percent from the first quarter of last year. In contrast, the BEA estimates that wage and salary income for the U.S. was up 4.1 percent in the first quarter of this year, and up 4.3 percent from the first quarter of last year. The very strong growth for Massachusetts in the first quarter is due most likely to a better-than-average bonus season and may also reflect at least in part growth in bonuses and salaries subject to the state’s surtax on incomes over a million dollars.

Spending on items subject to the Massachusetts regular sales tax and motor vehicle sales tax was down 9.2 percent on an annualized basis in the first quarter, and down 1.1 percent from the first quarter of last year. This measures seasonally-adjusted nominal, i.e., not inflation-adjusted, spending on non-exempt goods by Massachusetts households and businesses, roughly $127 billion in 2025. (Exempt goods include groceries, most clothing, home fuels and energy, and gasoline and other motor vehicle fuels.) This reflects weaker spending on goods, and the decline was particularly notable for motor vehicles, which declined by $1.5 billion in the first quarter on an annualized basis from the fourth quarter of last year and was down $2.1 billion from the first quarter of 2025.

Inflation in the first quarter was lower in the Boston metropolitan area than in the U.S. The CPI-U consumer price index rose at an annual rate of 1.2 percent in Boston in the first quarter compared to 3.6 percent nationally. The core rate which excludes food and energy was also lower in Massachusetts in the first quarter of 2026, at an annual rate of 1.0 percent in Boston and 2.8 percent for the U.S. From the first quarter of 2025 to the first quarter of this year, the Boston CPI rose 1.7 percent versus 2.7 percent for the U.S., and the core CPI rose 1.6 percent in Boston versus 2.5 percent in the U.S. The more moderate trend in price inflation in the Boston area over the past year was broad based, including food, housing/shelter, new and used vehicles, and medical care. Gasoline prices were an exception for both Boston and the U.S. In March gasoline prices were up 19.9 percent in Boston from January, and up 18.3 percent from March of 2025.

The MassBenchmarks leading index is assuming a quick re-opening of the Strait of Hormuz and is projecting moderate annualized growth of Massachusetts GDP of 2.1 percent in the second quarter, and 2.5 percent in the third quarter. The Wall Street Survey of economists’ mean projection for U.S. GDP is 1.7 percent in the second quarter and 1.8 percent in the third quarter. A continuation of the war in the Mideast and associated disruptions in global energy markets can be expected to result in slower growth than predicted by the leading index.

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