Lagging Bay State Economy Raises Threat of Young Worker Exodus

Posted by Andre Mayer on Aug 1, 2013 11:29:00 AM

The U.S. economy expanded at a 1.7 percent annual rate in the second quarter of 2013, while the growth rate of the Massachusetts economy for the quarter fell to 0.8 percent. How worried should we be?

Massachusetts economyTake a breath and consider thefollowing:

First, these are preliminary numbers, trading off accuracy for timeliness. Over the past four years, subsequent revisions to national advance estimates by the Bureau of Economic Affairs (BEA) have averaged 1.3 percent.  The MassBenchmarks state index, developed by Alan Clayton-Matthews of Northeastern University, a member of AIM's Board of Economic Advisors, and James H. Stock of Harvard University, a member of the President's Council of Economic Advisors to model the state’s GDP, relies on more limited and even more volatile data.

Second, this is one quarter. These same indicators showed Massachusetts outperforming the nation in the first quarter, and keeping pace in the second half as growth accelerates.

Moreover, the reasons for the Bay State’s lagging performance are evident. Professor Clayton-Matthews, who compiles and analyzes the current and leading state indices, stresses the impact of federal budget cuts on key private-sector industries.

The BEA also cites exports and residential investment as drivers of national growth, but Massachusetts exports are down because of weakness in our European markets, while homebuilding is not as large a component of the economy in our state as it is elsewhere. Massachusetts fared relatively well in the downturn in part because we were less exposed than other states to the hard-hit construction and automotive sectors – and in the recovery we are benefiting less from their resurgence.

Our greatest concern, as Clayton-Matthews notes, should be job creation. Although Massachusetts has recouped the jobs lost in the recession, its unemployment rate is still high and now rising, while national unemployment, even higher, continues to decline. Younger people and those with lower educational attainment (less than a college degree) are particularly affected.

This employment issue casts a shadow on the good news in the BEA report: upward revisions showing that the nation’s economic recovery since 2009 has somewhat more rapid than was previously believed. National growth is ultimately good for Massachusetts, but only to the extent that the state participates. In past recoveries, when Massachusetts lagged, it suffered an outflow of mobile young people moving to regions where employment opportunities were greater. The possibility of another such loss of young talent is what should worry us now.

Topics: Business Center, Massachusetts economy, Jobs

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