Slow job growth, rising income levels forecasted in Massachusetts
Experts on Wednesday predicted the Bay State’s economy would grow in line with the nation as a whole, with an expectation that the Massachusetts unemployment rate would drop by the beginning of 2017 to 5.2 percent.
“That’s a slow but steady improvement,” said Alan Clayton-Matthews, of Northeastern University, in a conference call presentation of the New England Economic Project’s Massachusetts, New England, and U.S. economic forecasts.
As the national economy was battered by a burst housing bubble, the collapse of Wall Street banks and financial turmoil overseas, the Massachusetts unemployment rate generally hung below the national rate in recent years. Lately, however, the state’s rate has slipped upwards while the national rate has dropped -both stood at 7.2 percent until the U.S. rate rose last week to 7.3 percent.
“That advantage has virtually disappeared,” Clayton-Matthews said. He said, “I think what’s happening in Massachusetts is we’ve seen an increase in the labor force and that’s driving our unemployment rate above what it would have been otherwise, and that’s mostly a temporary, cyclical factor that will disappear over time.”
For comparison’s sake, the Massachusetts jobless rate stood at 4.6 percent in the first quarter of 2008, just as the recession began and early in Gov. Deval Patrick’s first term as governor. Massachusetts voters in 2014 will elect a successor to Patrick, who is not seeking re-election.
Regionally, Massachusetts has regained the recession’s job losses, while Vermont is on the cusp of that accomplishment, as the New England region is expected to return to pre-recession employment in 2014, said Community College System of New Hampshire Chancellor Ross Gittell.
In a region that is lagging behind the nation’s rate of economic growth, the states of Rhode Island and Maine will be slowest to regain jobs lost, said Gittell, who ranked New Hampshire, Vermont and Massachusetts at the top with the Greater Boston area driving growth.
“We’ve surpassed our prior recession employment peak, but we haven’t surpassed the all-time peak, which was just before the Dot Com bust, and this forecast assumes that we’re going to hit that peak again by the end of next year, near the end of 2014,” said Clayton-Matthews, who said employment in Massachusetts should rise 1.4 percent in 2014 and 1.9 percent in 2015 before leveling off because of demographic trends.
NEEP’s Massachusetts outlook forecasts gross state product will grow at a 2.9 percent annual average rate from the second quarter of 2013 to the fourth quarter of 2017, while real personal income is expected to growth at a 3.6 percent average annual rate.
The housing market remains a “bright spot” throughout the region and the country, and Gittell predicted the only New England state to return to its pre-2007 housing prices over the next few years would be Vermont.
Massachusetts housing sales, permits and prices are all on the rise, with the number of sales at 2005 levels, said Clayton-Matthews, who predicted Massachusetts houses would become as affordable, when rising income levels are considered, as they were in the mid-1990s.
“Housing prices will reach their peak by the end of 2017,” Clayton Matthews said. He said, “That’s relatively slow price growth over this forecast, and income will be growing faster than house prices, so that means affordability will be increasing, will be getting better over the forecast. And that’s important for Massachusetts because of our high cost of living.”
Moody’s Analytics Chief Economist Mark Zandi predicted that the Federal Reserve’s government bond buying program known as quantitative easing will begin to taper off next year, driving up interest rates, which could potentially “short circuit” his predicted rise in the housing market.
Zandi said while corporate balance sheets are solid, the economy lacks confidence and the risk-taking needed to help drive growth.
“I have been overly optimistic about the health of this recovery,” Zandi said, qualifying his analysis.
Zandi said he expects a federal spending deal to avoid another federal government shutdown or breaching of the debt ceiling, and said the economic impact of the discretionary spending cuts known as the sequester would lessen over the years.
“The sequester lowered government spending this year,” said Zandi. “Spending would remain at that lowered level going forward, so what matters for economic growth is the change in spending, so the impact, the negative impact, occurs this year, in 2013, and again in 2014, and by 2015 its impact on growth abates, goes away. By 2016 it’s gone altogether.”
The New England Economic Project found the sequester has constrained economic growth this year, and that fourth quarter growth was hampered by the 17-day partial government shutdown in October.
The sectors of construction; professional and business services; leisure and hospitality; information; and education and health services are projected to grow faster than overall employment.
The sectors of trade, transportation, and utilities; and financial actives are projected to have slightly fewer jobs than before the recession.
Productivity in the Greater Boston labor market has also increased over the decades.