Government Gridlock Sends Confidence Plummeting

Posted by Andre Mayer on Nov 5, 2013 9:13:00 AM

The federal government shutdown and potential default on the national debt sent confidence plummeting among Massachusetts employers last month.

BCI.October.2013The Associated Industries of Massachusetts Business Confidence Index lost 4.8 points in October to 46.7, its lowest level in more than year. The downturn was led by a dramatic confidence drop in the national economy as Bay State employers viewed the government shutdown as yet another sign that partisan political battles have left the nation unable to address its serious economic challenges.

"Obviously the shutdown disrupted economic activity," said Richard C. Lord, President and Chief Executive Officer of AIM and a member of the association’s Board of Economic Advisors (BEA).

"But the larger problem for business confidence is that the federal government is not giving us the decisions and action we need – even when it is ostensibly up and running."

 Raymond G. Torto, Chairman at CB Richard Ellis Group, Inc. and Chair of the BEA said the “great majority of survey responses came in during the shutdown, and as a debt ceiling crisis loomed. While the threat of a shutdown had little apparent effect on the September results, the reality in October had a big impact.”  

He noted that while only 13 percent of employers responding to the monthly Business Confidence survey had seen, or expected, direct impact on their operations, another 64 percent believed there were negative effects on overall business confidence and the  economy.

The AIM Index has appeared monthly since July 1991. It is calculated on a 100-point scale, with 50 as neutral; a reading above 50 is positive, while below 50 is negative. The Index reached its historic high of 68.5 on two occasions in 1997-98, and its all-time low of 33.3 in February 2009.

Confidence in the national economy dropped 6.7 points to 37.8. The Massachusetts Index, assessing business conditions within the Commonwealth, meanwhile lost only 2.7 points to 44.5.

The Company Index, reflecting survey respondents' assessments of conditions for their own operations, was down 3.6 points in October at 51.7. The Sales Index was off 2.6 at 53.0, and the Employment Index took a larger loss, dropping 3.4 into negative territory at 48.5.

Employment activity was negative over the previous six months, with 28 percent of respondents reporting staff reductions while 19 percent added positions, but near neutral for the period ahead, as 17 percent planned to add personnel and 18 percent foresaw reductions.

"These numbers might be seen as moderately encouraging in that they suggest prospective stabilization of the employment situation," said Elliot Winer, Chief Economist, Northeast Economic Analysis Group LLC.  . "Unfortunately, the government shutdown has disrupted data services of the Bureau of Labor Statistics and other agencies, leaving us with less information than usual about economic trends."  

Topics: Business Center, AIM Business Confidence Index, Massachusetts economy

Government Shutdown Grounds International Trade

Posted by Kristen Rupert on Oct 9, 2013 1:44:00 PM

The federal government shutdown is having a negative impact on international trade, as US exporters and importers run into barriers related to shipments, documentation, inspections and information sources.  Many US government websites are either shut down or not being updated. 

International TradeAlthough Customs & Border Patrol (CBP), which oversees U.S. ports of entry, is up and running, trade executives are advised to check with individual ports.  The Environmental Protection Agency is essentially closed, meaning that no one is available to inspect import shipments of materials such as pesticides and related devices.  The result is that shipments may be stuck at ports or in warehouses.  The Bureau of Industry and Security (BIS) is not accepting export license applications, meaning that manufacturers of high-tech products such as semiconductors that are subject to export controls may see outgoing shipments delayed.

Closer to home, the US Department of Commerce, Commercial Service office in Boston, which provides export assistance to hundreds of Massachusetts companies, is shuttered.

One of the most popular services offered by the US Commercial Service is the Gold Key matching service, which provides companies with names of potential overseas distributors, partners, agents and sales representatives.  With the shutdown, Gold Key service is not available to exporters, meaning that companies may delay plans to enter new markets or expand current exports.  Research already underway will continue once the shutdown is over; companies set to begin a Gold Key engagement face uncertain delays.

Even state agencies in Massachusetts that provide export assistance may be affected if the shutdown continues indefinitely, because state funding is often contingent on federal funding.

On the global level, long-planned negotiations between U.S. and European Union trade professionals, scheduled for this month in Belgium, have been cancelled.  The trade deal being negotiated, known as T-TIP (Transatlantic Trade & Investment Partnership) is expected to boost economic input by billions of dollars on both sides of the Atlantic.  The scrapping of the October trade talks may negatively affect the goal of completing negotiations by December 2014.

Further information on how the shutdown is impacting individual federal agencies may be found at or at agency websites.  

Topics: International Trade, Business Center

Employers: Too Much Uncertainty, Not Enough Momentum

Posted by Christopher Geehern on Oct 1, 2013 9:26:00 AM

The Associated Industries of Massachusetts Business Confidence Index rose 2.8 points in September to 51.5, continuing a yearlong pattern of fluctuations around the neutral 50 level.

AIM Business Confidence Index"Although there is a very slight upward trend in the quarterly averages of readings, from 48.6 in the fourth quarter of 2012 to 49.8, 50.5, and 50.9 in the third quarter of 2013, the fact remains that the September Index is just about where it was a year ago (51.3)," said Raymond G. Torto, Chairman at CB Richard Ellis Group, Inc., the chair of AIM’s Board of Economic Advisors (BEA).

"We are not seeing the sustained positive employer confidence that is required to spur job creation and bring down the unemployment rate – which has actually ticked up in our state."

Torto noted that business confidence seems to have become less responsive to successive "crises" arising from political deadlock in Washington.

"The initial debt ceiling impasse, and later the 'fiscal cliff,' had negative effects on business confidence, evident in AIM's Index and elsewhere," he pointed out.

"The present deadlock over the federal budget and debt ceiling is not eliciting a similar response, although economists on both sides of the political divide are using words like 'catastrophic' to describe the potential effects of a government shutdown.  Instead of responses to specific threats – which have not so far become realities – there is a consistently negative assessment of national conditions." 

AIM’s Business Confidence Index has been issued monthly since July 1991 under the oversight of the Board of Economic Advisors. Presented on a scale on which 50 is neutral, its historical high was 68.5, attained in 1997 and 1998; its all-time low was 33.3 in February 2009. 

Conditions Similar to Year Ago

Most of the sub-indices based on selected questions or respondent characteristics rose in September after falling in June, recovering in July and dropping again in August; most were close to their levels of September 2012.  The Current Index, tracking employers’ assessment of existing business conditions, added 2.9 points to 50.6, and the Future Index, measuring expectations for the next six months, gained 2.7 to 52.4.

"These indicators are back above 50, but what we're really looking at is a seesaw effect with no sustained direction," said Fred Breimyer, Regional Economist, FDIC, a BEA member.  "There is too much uncertainty and not enough momentum to build confidence in the overall economy."  

The U.S. Index of business conditions prevailing nationally gained 2.5 points in September to 44.5, while the Massachusetts Index of conditions within the Commonwealth rose 2.8 to 47.2

"The Federal Reserve's decision to hold to quantitative easing, and perhaps the avoidance of military action in the Middle East, appear to balance fiscal concerns at the national level," Breimyer noted. "In Massachusetts we saw favorable movement on the software tax issue, as well as the best employment report in several months."

Employment Prospects Brighter, but Manufacturing Confidence Lags

The Company Index, which measures survey respondents’ overall confidence in the situations of their own operations, added 2.9 points in September to 55.3. The Employment Index added 3.2 to 51.9, and the Sales Index gained 1.7 to 55.6.

 "The employment number is positive again after a dip, which is good news," said AIM Senior Advisor André Mayer, who compiles the Business Confidence Index. "Although most employers are standing pat on staffing, more reported additions than decreases in the past six months (27% - 22%), and the expected ratio for the next six months is better (21% - 11%). These results appear to bear out the state's most recent employment report, which indicated a resumption of job creation."

Confidence was up slightly in September among manufacturers (+1.7 to 49.1), and more strongly among other employers (+4.9, 55.2).

"Manufacturers, who were less positive than other employers on every question, are currently facing adverse conditions, especially in key export markets," Mayer noted.  "In other sectors, the move to repeal the new state software tax may be seen as favorable not only by firms affected directly, but also by others concerned about a broader tax on services."  Confidence was up within Greater Boston (+4.4 to 54.4) and down in the rest of the state (-1.3 to 45.7) where manufacturing predominates over services in the economy. 

Policy Does Affect Confidence

"Except in cases where there is a hugely disruptive economic development, it is usually difficult to attribute results of our Business Confidence Survey to specific issues – but this month I think we can," said Richard C. Lord, AIM’s President and CEO, a BEA member. "Beacon Hill's timely response to consternation in the business community by repealing the under-considered tax on software services surely played a part in improving employer perceptions of the Commonwealth's business climate, particularly evident in responses from the services sector."

Topics: Business Center, AIM Business Confidence Index, Massachusetts economy

Manufacturing Shift to U.S. Accelerates

Posted by Christopher Geehern on Sep 25, 2013 4:11:00 PM

The number of American manufacturing companies looking to shift production from China to the United States has doubled since 2012, according to a new study from The Boston Consulting Group.

ManufacturingThe study found that 54 percent of U.S.-based manufacturing executives at companies with sales greater than $1 billion are planning to “re-shore” production, or are considering it, up from 37 percent who responded to a similar survey in February 2012. When asked whether they expect to move production in light of rising wages in China, 21 percent of respondents—around twice as many as in 2012—said they are “actively doing this” or that they “will move production to the U.S. in the next two years.”

The new survey, conducted last month, is based upon responses from more than 200 decision makers at companies across a broad range of industries. Virtually all of the companies manufacture in the U.S. and overseas and make products for both U.S. and non-U.S. consumption.

The Boston Consulting study is consistent with a developing consensus among economists that rising wages overseas and the need for tighter control of supply chains is prompting manufacturers to boost their production in the United States. The 2012 U.S. Re-shoring Survey by the MIT Forum for Supply Chain Innovation similarly found that manufacturers are taking another look at domestic production due to higher labor costs in developing countries, energy costs, political stability issues, and time-to-market concerns.

The trend is good news for Massachusetts, where “manufacturing is alive and well, and has a healthy future,” according to a report last year entitled Staying Power II: A Report Card on Manufacturing in Massachusetts, by Professor Barry Bluestone and his team at Northeastern University.

Some key findings of the report about Massachusetts manufacturing:

  • Manufacturing employment has stabilized after a sharp decline during the recession;
  • Manufacturing is the state’s six-largest employment sector – and the second-largest (after health care) in terms of payroll;
  • Manufacturing’s share of gross state product has risen for the past two years, to 12.2 percent;
  • The number of manufacturing firms increased in 2011 for the first time in decades;
  • Manufacturing is more technologically intense than ever; in 1970 employment in low-tech sectors was twice that in high-tech; in 2006 they were equal, and by 2010 high-tech was 27 percent larger;
  • Most Massachusetts manufacturing companies are small and family-owned;
  • The manufacturing workforce is more diverse than the overall state workforce; and
  • Although most jobs in manufacturing are now “white collar,” only about one position in five requires a college degree

While cost issues and global competition are challenges, the study finds, the skills and work ethic of the state’s workforce are powerful reasons to stay in Massachusetts. But employers are already experiencing difficulty in hiring skilled workers, and an upcoming wave of retirements will create up to 100,000 job vacancies over the next ten years. The 70 percent of manufacturing firms foreseeing expansion of employment over the next five years must face up to this “recruitment challenge” by focusing on workforce development and promoting manufacturing careers. 

The Boston Consulting Group projects that production reshored from China and higher exports due to improved U.S. competitiveness in manufacturing could create 2.5 million to 5 million American factory and related service jobs by 2020.

“Over the past couple of years, we’ve projected an improvement in U.S. manufacturing competitiveness by 2015 that would help drive an American manufacturing revival,” said Harold L. Sirkin, a BCG senior partner. “The results of our latest survey make clear that a profound shift in attitude is beginning.”


Topics: Business Center, Manufacturing

Uncertainty Erodes Employer Confidence in August

Posted by Andre Mayer on Sep 5, 2013 6:33:00 AM

"The combination of mixed economic reports and recurrent policy uncertainties has meant a bumpy road for employer confidence."

BCI.August.2013That may be the understatement of the year by Raymond G. Torto, Chairman at CB Richard Ellis Group, Inc. and Chair of the Associated Industries of Massachusetts (AIM) Board of Economic Advisors (BEA).  Torto and other analysts believe that pervasive economic and political uncertainty continue to erode the confidence of Massachusetts employers and, more importantly, the ability of those employers to expand their employment roles.

The most recent evidence came this morning when the AIM Business Confidence Index (BCI) showed that employers fell back into pessimistic territory in August, dropping 3.8 points to 48.7 on a 100-point scale. The decline, which left confidence 6.5 points weaker than its level of a year ago, was driven by growing bearishness about the slowing Massachusetts economy.

Torto said rising interest rates have impeded the housing recovery and raised concerns about the ability of the Federal Reserve to taper off its quantitative easing initiative.

"We also see renewed Congressional deadlock with another debt ceiling crisis looming, and now the possibility of military intervention in the Middle East.  These national and global uncertainties come at a time when the Massachusetts economy is lagging – growth and job creation are at a near standstill, and consumer confidence is down locally while strengthening nationally. Once again, the weight of multiple uncertainties is holding down robust confidence," Torto said.

Richard C. Lord, President and Chief Executive Officer of AIM, agreed that the specter of uncertainty is wearing away at employer confidence.

"It's often been noted that the meltdown of 2008-2009 increased awareness of uncertainty, and we continue to see the effects today,” Lord said.

"When we see the Company Index down 7.2 points on the year – more than overall business conditions, more than the sales indicator – that's a sign of uncertainty, because employers generally expect to surmount challenges they understand. This aspect of business confidence, confidence in one's own operation, is the key to job creation, and the reason why our Employment Index is off 7.5 points from a year ago.”

The August decline continued an alternating rise-and-fall pattern that has marked the Business Confidence Index for most of 2013. The index rose in May, declined in June and then rose again in July before falling last month to 2.7 points below its starting point for the year.

Employer views of the Massachusetts and national economies continue to converge after several years in which the Bay State drew higher grades than the rest of the country. The Massachusetts Index portion of the BCI lost 3.8 points in August to 44.4, just above the U.S. Index of National Business Conditions at 42. The commonwealth produced just 300 jobs during July after losing 2,100 in June.

"There is no doubt that the state's economy has lost momentum in recent months," said Katherine A. Kiel, Professor of Economics at the College of the Holy Cross, a BEA member.

"The unemployment rate has been creeping back up, and the most recent employment report showed essentially no job creation."

Employer hiring plans continued to lag well behind their view of sales.  The AIM Index found that 29 percent of respondents reported staff reductions while 19 percent added positions.

The AIM Index has appeared monthly since July 1991. It is calculated on a 100-point scale, with 50 as neutral; a reading above 50 is positive, while below 50 is negative. The Index reached its historic high of 68.5 on two occasions in 1997-98, and its all-time low of 33.3 in February 2009.

Topics: Business Center, AIM Business Confidence Index, Massachusetts economy

Why We Think the Economy Should be Doing Better

Posted by Andre Mayer on Aug 26, 2013 8:21:00 AM

Why do we find it so hard to believe, after more than four years of economic growth, that a real recovery is here?  A big part of the answer is highlighted in a chart offered by J. Bradford DeLong, Professor of Economics at Berkeley:


What the chart shows is that coming out of the recession U.S. gross domestic product resumed its previous rate of growth, but has never resumed its previous growth path – as it did after past downturns (though belatedly in the case of the Great Depression).  This leaves a gap of some 5.5 percent between where GDP actually is and where it would (or should) be on the established path. The persistence of the gap and the cumulative loss of output, more than the initial depth of the trough, is emerging as the most serious aspect of the Great Recession.

DeLong, a respected economist of centrist bent, sees no reason to believe “that the path of growth of U.S. sustainable potential GDP is materially lower today than was believed back in 2007.” For him, the chart indicts policy positions of congressional Republicans, the Obama administration, and the Federal Reserve Board. For me, it presents at least a partial explanation of a recurring issue in AIM’s monthly Business Confidence Index: the reluctance of Massachusetts employers, over the past four years, to offer strongly positive assessments of current and prospective business conditions – even when the economy is growing strongly.

We can talk about a “new normal” of slower growth, and adjust our business plans and our investment portfolios accordingly; but perhaps on some level of sentiment we have not lowered our expectations in the same way. Even when the economy is going pretty well, we think it should be doing better. And we may be right. 

Topics: Business Center, Massachusetts economy, Economy

US-European Trade Deal Important for Massachusetts Economy

Posted by Kristen Rupert on Aug 15, 2013 1:30:00 PM

The United States and European Union (EU) are currently negotiating a broad trade agreement called the Transatlantic Trade & Investment Partnership.  Here’s why Massachusetts employers should pay attention.

International TradeThe EU-US trade relationship is the largest in the world.  It represents nearly half the world economy.  And the transatlantic relationship in some ways defines the shape of the global economy. 

Here in Massachusetts, more than one-third of our 2012 product exports were sent to Europe, with the majority going to the United Kingdom, Germany, Netherlands, Belgium, France, Ireland and Italy.  Most small and medium-size businesses in the commonwealth that are exporters count at least one European country among their critical markets. 

The removal of trade barriers—tariffs, regulatory barriers and protectionist restrictions—will result in job creation and economic growth on both sides of the Atlantic.  Some estimates indicate that trade could increase up to 30 percent.

"I believe (the agreement) will stimulate our bilateral relationship and also put us in a good position as we negotiate multilateral agreements," said EU Ambassador to the US Joao Vale de Almeida on a recent visit to Massachusetts.

What are the primary goals of the negotiations?

Tariff reduction is one.  Although tariffs between the EU and US are low—3-5% average—a reduction of just two percentage points on large volumes of goods will have a huge economic impact.

More challenging is the goal to address non-tariff barriers, comprised of administrative regulations, technical regulations, standards, certification and heavily protected domestic industries, including autos, agriculture and textiles.  Differences in standards and regulations can add 10-20 percent additional cost to finished products.

Consider the auto industry.  Auto crash tests are conducted differently in the EU and the US.  The purpose of the testing is the same—protection and safety—but because of inconsistencies between the two testing processes (EU test dummies wear seatbelts, US dummies do not), autos to be shipped between the EU and US are required to go through a second complete round of testing, costing time and money.

There are several reasons for the new urgency behind EU-US trade negotiations.  The recent financial crisis, from which Europe is emerging more slowly than the US, signaled that new sources of growth are needed.  There’s more growth potential when economies act regionally and globally, not just domestically.

Another reason is that World Trade Organization (WTO) negotiations have been stalled, and the expectation is that the WTO will not soon address EU-US trade concerns and opportunities.  Today’s political and economic environment is favorable for an EU-US trade deal, with mutual interest in increasing access and opening markets.  And government officials and elected leaders in the EU and the US truly want to make this trade agreement happen.

The agreement represents an opportunity for the EU and the US to optimize existing relationships while also preparing for, and adapting to, the future. A single EU-US market would be more efficient than dozens of smaller markets.  (The EU currently has 27 member countries.)

So what happens next?  The first round of negotiations last month set the stage for areas of cooperation and mutual understanding.  More than 150 negotiators will meet again in October, in Brussels.  Already, some US industry sectors (automotive, chemical, pharmaceutical) are holding their own meetings with EU partners to achieve regulatory cooperation and eliminate unnecessary differences.

Ultimately, the US Congress will be asked to approve the transatlantic trade agreement, which would be the largest trade agreement in the world.  As negotiations take place over the next 12 to 18 months, Massachusetts employers engaged in global trade should be sure their customers and legislators are aware of the importance and value of this EU-US trade deal to our economy.

Topics: International Trade, Business Center, AIM International Business Council

Job Growth Halts in Massachusetts

Posted by Andre Mayer on Aug 15, 2013 10:30:00 AM

Employment growth in Massachusetts has ground to a halt.

JobsThe state announced this morning that Massachusetts added just 300 jobs last month (2,500 in the private sector), while revisions turned a preliminary 2,800-job gain in June into a 2,100-job loss. Leisure and Hospitality; Trade, Transportation, and Utilities; Information; Financial Activities; and Professional, Scientific, and Business Services all added jobs in July.

Unemployment rose to 7.2 percent, the third straight monthly increase. The rate was up 0.2 percentage points from June, and 0.4 percentage points from last July. The national unemployment rate meanwhile, declined by 0.8 percentage points to 7.4 percent over the year.

Over the full year, Massachusetts has gained 40,100 jobs, but only 15,900 of those were added in 2013, reflecting slower growth. A separate household survey shows only 5,100 more state residents employed, and 15,000 more unemployed, since last July.

The employment numbers confirm recent statistics showing that while the U.S. economy expanded at a 1.7 percent annual rate in the second quarter of 2013, the growth rate of the Massachusetts economy for the quarter fell to 0.8 percent. 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.

While this local news is not good, one hopeful sign for Massachusetts comes from Europe, where statistics released earlier this week show the Eurozone returning to growth in the second quarter after six quarters of contraction. These results were better than expected, with actual expansion in the two largest national economies, Germany and France, and improvement in Italy and Spain.

Because Massachusetts ranks second among all states in its dependence on exports to Europe, the recession in the Eurozone has been a significant drag on our economic recovery.

AIM Executive Forum Lynn Dugle

Topics: Business Center, Massachusetts economy, Jobs, Unemployment

Business Confidence Rebounds; No Net Change in 12 Months

Posted by Andre Mayer on Aug 6, 2013 9:37:00 AM

The confidence level of Massachusetts employers rebounded during July leaving it … right where it was a year ago.

BCI.July.2013The AIM Business Confidence Index rose 3.6 points in July to 52.5, recouping June’s loss and moving back into positive territory above 50. The increase eased fears of a fourth consecutive summer confidence swoon, but it also left employer sentiment almost exactly equal to the 52.2 level it reached in July 2012.

"AIM's Business Confidence Index is entering its twenty-third year about where it began its twenty-second," said Richard C. Lord, the organization’s President and CEO, a BEA member.

"The biggest difference between the results of our July 2013 survey and those of a year before is a significant improvement in the assessment of national conditions, as the U.S. Index is up from 41.9 to 46.0. This gain in part reflects a rebuilding economy, but also reflects the fact that the Senate's movement to approve some key presidential appointment offers some hope of eventual agreement on fiscal matters as well."

AIM’s Business Confidence Index has been issued monthly since July 1991 under the oversight of the Board of Economic Advisors. Presented on a scale on which 50 is neutral, its historical high was 68.5, attained in 1997 and 1998; its all-time low was 33.3 in February 2009. 

Analysts believe that persistent uncertainty is wearing down employer attitudes toward the economy.

"Employers' fear of uncertainty remains greater than it was before the recession – and uncertainty is particularly damaging to confidence because it is unpredictable and generally unmanageable,” said Raymond G. Torto, Chairman at CB Richard Ellis Group, Inc., and chair of the AIM Board of Economic Advisors (BEA).

“The persistent pattern of halting growth and policy frustration, though now familiar, continues to weigh down on business confidence."

The economic uncertainty grew last week as the government announced that 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. 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.

Business confidence has drifted in a narrow range for most of 2013, staring the year at 50.4 and dropping to 48.9 in June before bouncing back last month.

All of the component elements of the Business Confidence Index rose during July. The Current Index, tracking employers’ assessment of existing business conditions, and the Future Index, measuring expectations for the next six months, each added 3.6 points, to 51.9 and 53.1 respectively.

 “Both of these indicators have moved back above 50, and the Future Index is ahead of the Current Index, so the results are positive and point to improvement,” said Michael A. Tyler, Chief Investment Officer, Eastern Bank Wealth Management, a BEA member. “The numbers are, however, just about the same as a year ago."

The Company Index, which measures survey respondents’ overall confidence in the situations of their own operations, added 4.6 points in July to 55.7. The Sales Index gained 5.5 to 55.5, while the Employment Index added 2.5 to 53.2.

"One of the most striking aspects of the recent history of the Index, for those of us who have followed it from its inception, is the fact that throughout this cycle of recession and recovery the Massachusetts Index has run ahead of the U.S. Index, in sharp contrast to past cycles," Lord said.

"Last week's second quarter growth estimates, showing that Massachusetts fared significantly worse than the nation over that period, remind us that our success in this cycle is partly luck – we suffered less than most states from, for example, the meltdown of the automotive and construction industries, and are now benefiting less from their resurgence.

Topics: Business Center, AIM Business Confidence Index, Massachusetts economy

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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