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In the third quarter of 2024, Massachusetts real gross state product (GDP) increased at an annual rate of 2.9 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 second quarter of this year Massachusetts GDP grew at a 1.9 percent annual rate while U.S. GDP grew at a 3.0 percent rate; and in the first quarter Massachusetts GDP grew at an annual rate of 5.6 percent while U.S. GDP grew at a 1.6 percent rate.

Real output of both the Massachusetts and the U.S. economies continued to grow at healthy rates while at the same time employment growth appears to be slowing and inflation rates declining, outcomes that are consistent with a “soft landing”. A boost in productivity in the third quarter and robust consumer spending — at least at the national level — have supported strong GDP growth even as labor markets show signs of softening.

Payroll employment growth in Massachusetts in the third quarter was a moderate 0.7 percent at an annual rate, weaker than the 1.1 percent growth for the U.S. This continued a trend of slower employment growth in Massachusetts relative to the U.S. In the second quarter state payrolls grew at a 0.5 percent annual rate for the state as compared to 1.5 percent for the U.S.  Relative to the third quarter of last year, payroll employment was up 1.0 percent in Massachusetts versus 1.6 percent for the U.S. Slower state employment growth has been partially offset by faster productivity growth, which recently has been running at a quarter of percentage point higher per year in Massachusetts than the U.S., based on the ratio of GDP to payroll employment.

Unemployment rates in Massachusetts have continued to be lower than in the U.S., although the gap has narrowed. The headline (U-3) unemployment rate for Massachusetts in September 2024 was 3.8 percent, up from 3.2 percent in June and from 3.3 percent in September 2023. The headline unemployment rate for the U.S. was 4.1 percent in September 2024, unchanged from June and up from 3.8 percent in September of 2023.

The U-6 unemployment rate, which counts as unemployed part-time workers who want full-time jobs and workers who have not looked in the past four weeks but who sought work in the past year, followed a similar pattern. The U-6 rate was 7.4 percent in Massachusetts in September, up from 7.2 percent in June and 6.1 percent in September 2023. For the U.S., the U-6 rate in September was 7.7 percent, up from 7.4 percent in June and 7.0 percent in September 2023.

The reason these unemployment rates rose more in Massachusetts than in the U.S. does not appear to be due to a more rapidly weakening labor market, but rather to a faster-growing labor force in Massachusetts in recent quarters – a “healthy” rise in the unemployment rate that provides more room for employment growth. The Massachusetts labor force in the third quarter of this year was up an annualized 5.9 percent from the second quarter and up 2.4 percent from the third quarter of last year. In contrast, the U.S. labor force in the third quarter was up a more modest annualized 1.6 percent from the second quarter and up 0.6 percent from the third quarter of last year.

Wage and salary income in Massachusetts appears to have been stagnant in the third quarter. Based on state withholding taxes on personal income, this income declined at a 0.3 percent annual rate (a nominal rate – not adjusted for inflation) in the third quarter. In the second quarter, the BEA estimated that state wage and salary income grew at a 2.7 percent annual rate. This growth was substantially slower than that for the U.S. over the same period. For the U.S., the BEA estimates that wage and salary income grew at a 4.9 percent annual rate in the third quarter and a 6.1 percent rate in the second quarter. It is too soon to make definitive conclusions from these data. State withholding taxes often fluctuate significantly from month to month or quarter to quarter, depending on timing and filing issues. On a year-over-year basis, the difference between Massachusetts and the U.S. is in line with relative rates of employment growth. Relative to the third quarter of last year, the withholding tax-based estimate of wage and salary income growth was up 5.8 percent in Massachusetts as compared to BLS’s estimate of 6.4 percent in the U.S.

Massachusetts spending on items subject to regular and motor vehicle sales taxes, which is concentrated on expenditures for goods, was also weak in the third quarter, declining at a 3.3 percent annual rate in nominal terms. This is also subject to significant monthly and quarterly fluctuations, and that is a likely explanation for the weak performance in the third quarter. In the second quarter, this spending grew at a 15.7 percent annual rate, and from the third quarter of last year to the third quarter of this year, this spending was up by 4.5 percent. Although not strictly comparable, nominal U.S. consumer spending on goods grew at a 4.3 percent annual rate in the third quarter, 3.7 percent in the second quarter, and was up 2.0 percent from the third quarter of 2023.

The rate of inflation declined modestly in the third quarter. The CPI-U of the Bureau of Labor Statistics (BLS), which is an index of prices paid by urban consumers, was essentially flat in the third quarter, decreasing at a 0.2 percent annual rate in the Boston Metropolitan area and rising at only a 1.2 percent rate for the U.S. region consisting of all metro areas measured. However, for Boston, this followed a sharp increase in the rate of inflation in the second quarter of 6.2 percent. Relative to the third quarter of last year, prices were up 3.4 percent in Boston and 2.6 percent in the U.S. Core price inflation rates, which exclude food and energy, were higher on a year-over-year basis, up 3.9 percent in Boston from the third quarter of 2023, and up 3.2 percent nationally.

The leading index for Massachusetts projects that the solid GDP growth in the third quarter of this year will continue into the fourth quarter, at an annual rate of 2.8 percent, and then slow to a 1.6 percent annual rate in the first quarter of 2025. The average projection of economists who participated in the Wall Street Journal survey of early October is for U.S. GDP growth of 1.7 percent in the fourth quarter and 1.7 percent in the first quarter of next year. Both projections are consistent with a “soft landing” and do not consider the impact of the recent national elections or the impact of expected changes in federal policy.

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