UMass Donahue Institute

BOSTON (AP)-New England's economic gains will continue to trail the nation's growth over the next four-and-a-half years, and the region's housing prices will keep declining through early next year, a regional economic forecast organization predicted today.

The New England Economic Partnership said New Hampshire and Connecticut are the only states in the region expected to exceed the nation by certain measures of economic performance during a forecast period running through 2011.

New Hampshire's economy is expected to have the region's strongest economy, with the value of the state's goods and services keeping pace with the nation's gross product growth rate, and job growth forecast to slightly exceed the nation's. Connecticut is expected to exceed the national growth rate for personal income.

The other four New England states will slightly lag the nation by most economic measures through 2011, according to the latest twice-a-year forecast prepared for the economic organization's spring conference in Boston today.

The value of New England's products and services is expected to post growth averaging 2.6% per year during a forecast period through 2011, compared with the 2.9% growth rate forecast for the nation, according to the forecast by a panel of economists.

Growth in total employment is expected to average 0.9% per year in New England, below the national average of 1.2%. Regional per capita income is forecast at 2.3% per year, compared with the nation's 2.5%.

Those trends are in line with economic data from recent years that have shown New England lagging the nation, and trailing far behind fast-growing regions such as the South and Southwest. After eight consecutive quarters of declines beginning during a recession in 2001, the number of jobs in New England finally began to increase in the second quarter of 2003.

The housing slump that began to ripple across much of the nation's housing market last year has hit especially hard in New England, and isn't expected to go away soon.

The forecast organization said it expects median housing prices in New England to decline through the second quarter of next year, with the steepest price declines expected in the final three quarters of this year. A slow recovery is expected beginning in mid-2008, but the region's housing prices aren't expected to return to their historic pre-slump peak until the middle of 2010.

By the time the slump ends, New England's median housing prices are expected to drop 12% from their pre-slump peak, bigger than the more than 8% decline forecast for the nation by Moody's Economy.com, an economic forecasting company.

"The housing price decline in the region is significant, but the decline is not expected to be as pronounced as the decline in the last housing recession in the late 1980s and early 1990s," said Ross Gittell, the organization's forecast manager and a professor at the University of New Hampshire.

Michael Goodman, the forecast organization's president and a University of Massachusetts economist, said efforts to make New England's housing more affordable shouldn't cease just because prices have declined.

"Housing production across much of New England is not expected to be adequate to meet demand in the years to come, and this market correction we are experiencing will make it even more difficult for developers," Goodman said. "This underscores the need for the development of prudent state policies to develop more affordable housing in New England."

The New England Economic Partnership is a 36-year-old nonprofit forecast organization with members from private industry, government and academia.

A state-by state look at the economies of New England states, from Thursday’s forecast by the New England Economic Partnership:

—Connecticut: Although the state has experienced one of the slowest recoveries from a recession that hit in 2001, job growth has recently picked up, with a gain of 17,600 jobs in 2006. Employment growth has continued this year, rising by 1,500 jobs so far. Through 2011, Connecticut is expected to post personal income growth of 2.8 percent per year, above the national rate of 2.5 percent.

—Maine: The state has posted fairly steady job growth over the past year that is expected to be maintained over the next several years. Maine added nearly 3,000 jobs last year, higher than had initially been forecast. The slump in the housing market has largely been confined to the southern part of the state, and is not likely to prevent the state from posting overall economic growth.

—Massachusetts: The Bay State in 2006 enjoyed its strongest year of recovery from the recession that began in 2001, by measures including employment and population growth. The pace of expansion has been much slower than growth in the 1980s and 1990s, and Massachusetts has followed a path of slow, steady growth since 2003. Robust national and international demand for technology products made in Massachusetts is helping prevent the state’s housing market slump from hurting the overall economy.

—New Hampshire: The state’s overall economy is expected to outperform the New England economy through 2011, and match the nation’s growth rate. Recent years’ decline in manufacturing jobs in New Hampshire will slow to a 0.5 percent loss each year, while the professional and business services sector will grow at 2.9 percent per year. Housing prices will decline modestly through the rest of this year and the first half of 2008 before rebounding in the second half of next year.

—Rhode Island: Although the state’s 4.2 percent unemployment rate in March was Rhode Island’s lowest monthly rate since October 2000, job growth has been slow so far this year. Manufacturing employment is expected to decline by 1,200 jobs this year, with construction jobs falling by 1,000 because of the slow housing market. The state’s fastest-growing job sectors are in financial activities, professional and business services, education and health services, and leisure and hospitality.

—Vermont: The state’s economic growth will slow this year, but post faster growth each year through 2011. Job growth is expected to remain between 0.5 percent and 1 percent per year through the forecast period, while personal income is expected to grow at relatively healthy rates of 2.3 percent to 3.5 percent per year. Manufacturing employment is expected to slightly increase for the next two years, but will be offset by declining construction employment.

May 24, 2007