Mass Economy Slowly but Surely Recovering Declares MassBenchmarks Editorial Board
Leading economists warn that regional imbalances are leaving many communities behind.
The nation and the state are continuing to recover slowly but surely from one of the most difficult recessions in our memory. The crisis of 2008 continues to cast a long shadow on the economy. While the immediate crisis has long since passed, recent research strongly suggests it will be years before the global financial system is fully recovered.
Though many challenges remain including the moribund housing market and persistent long-term unemployment in selected sectors and demographic groups, the Massachusetts economy continues to enjoy a relatively faster recovery than the nation due in part to its strengths in education, health care and high technology and its more highly educated population.
In April, the state's unemployment rate of 7.8% was more than a full percentage point below the national rate of 9.0%. Encouragingly, April job growth was spread across a number of sectors, including manufacturing and construction, two segments of the economy that were among the hardest hit in the recession. While there are reasons to exercise caution in relying on employment data, especially in the volatile Leisure and Hospitality sector (where the presence of many small firms produce volatility in the data), the positive signs in the state labor market are consistent with other major indicators. According to the MassBenchmarks Current Economic Index, the state economy grew at a more than 4.0% annualized rate in the first quarter and state tax revenues, especially from the income tax, have been consistently above projections in recent months. These are all welcome developments.
While the recovery now appears to be spreading to a broader selection of sectors, the story of the economic recovery in the state is analogous to the one that was told about the recession: Massachusetts is strong in those sectors that have come out of the recession more quickly (and that did not descend so much during the recession); and the state is under represented in sectors, especially construction, which continue to stagnate (and which led to the downturn).
The sectors that are now leading the upturn, and cushioned the state during the decline, are focused in information technology, education, and health services. A key element of the state's recovery has been the export sector, which has benefited from a weakened dollar. Among the state's more prominent trading partners are three of the fastest growing national economies: Germany, China, and India.
No narrative about the Massachusetts economy is complete without describing the growing imbalances in the state. Even before the recession, growing prosperity in the state was concentrated in the Boston metropolitan area, and more narrowly to certain sectors in the Boston area. This pattern has only intensified during the current recovery period. "Gateway Cities" such as Fall River, Lawrence, Lowell, New Bedford, and Springfield all have unemployment rates near or above 10%, in some cases approaching 20%, in recent months. It is understandable that in many areas of the Commonwealth the news of economic recovery is greeted with profound skepticism and the fact that Massachusetts is performing better than the nation as a whole is of little consolation to residents of these communities.
In the near-term, the outlook is for more of the same. For the Greater Boston region this means moderate but steady economic growth and continuing recovery. For other parts of the state including the "Gateway Cities", long-term efforts to improve both public education and to rebuild their civic and the physical infrastructure will be required if these communities are to have an opportunity to more directly contribute to and benefit from future economic growth.
This summary reflects the discussion of the members of the editorial board of MassBenchmarks at its meeting on May 20, 2011. It was prepared by Executive Editor Robert Nakosteen and was reviewed and edited by the members of the editorial board. While discussion among the Board members was spirited and individual Board members hold a wide variety of views on current economic conditions, this summary reflects the consensus view of the Board regarding the current state of the Massachusetts economy.
MassBenchmarks is the journal of the Massachusetts economy and is published by the UMass Donahue Institute in collaboration with the Federal Reserve Bank of Boston. Its editorial board is made up of leading economic analysts from across Massachusetts. The opinions expressed by the Editorial Board do not necessarily represent the opinions of the Federal Reserve or the University of Massachusetts.