By FRANK CONTE
Massachusetts posted strong gains in 2023 but they’re eroding away, according to a recent analysis by MassBenchmarks, a publication from a highly-respected group of economists and academics associated with the University of Massachusetts and the Federal Reserve Bank of Boston.
Like the U.S., the state’s economy grew last year despite the headwinds of higher interest rates, hard-to-curb inflation, and uncertainty propelled by geopolitical factors. Last year, the state’s unemployment rate hit record low levels with job growth showing up in all sectors. Most business observers were expecting a recession that never materialized and labor markets remained tight.
However, the Massachusetts economy has slowed down — leading MassBenchmarks to issue warnings – “downside risks” moving into the rest of the current year. Economists are worried about trends that show signs of weakening. They expect state GDP – the value of final goods and services produced in Massachusetts – to decline by half. In the first quarter of 2024, the economists estimate that the state’s GDP decreased to 1.8 percent compared to 4 percent in the second half of 2023.
According to MassBenchmarks, “the supposedly robust job growth seen in 2023 has been largely erased through a downward revision by the Bureau of Labor Statistics.” And there has been a lack of growth in the key professional and business service sector, where Massachusetts has a human capital advantage over most other states.
That observation is supported by recent news from the state’s biotech (or life sciences) sector. According to the Boston Business Journal, 12 biotech firms are on the way to cutting 1,800 jobs this year. But accounting for a longer time frame, MassBenchMarks is sounding the alarm: “Looking at key sectors of the Massachusetts economy, there is concern that professional and business services (which includes engineering, computer system design, and research and development)…is no longer growing.”
But it is not just the life sciences and the professional and business service sector that bear watching. To be sure, there’s some job growth but it’s slower than the national rate, note the economists, “but uncertainty remains because these numbers, too, could be revised downward.”
Last Friday’s U.S. jobs report also showed downward revisions at the national level to previous job growth numbers over the past few months. If the economists of MassBenchmarks are correct, those revisions could filter down to Massachusetts.
The view from above paints a starker picture. As the report notes, employment in Massachusetts in April 2024 remained 13,000 jobs below its pre-pandemic peak. It is hard to believe that the effects of Covid-19 are completely out of the rear-view mirror. But other states have recovered.
Most of the challenges remain hard-wired: high housing and energy costs, taxation, and poor infrastructure (think public transit and decrepit roads) are perennial issues that are difficult to solve. On top of that is the growing domestic out-migration that may be caused by the challenges listed above such as housing and new taxes for high earners.
According to the Internal Revenue Service, which tracks interstate migration and income trends, Massachusetts lost $3.9 billion in adjusted gross income because of people leaving. That out-migration (in terms of people not money) has been offset by immigration from abroad. But it will take some time before the new arrivals secure the skills to get the professional and business services sector in Massachusetts growing again.
The authors conclude: “The overall message about the state’s economy is currently quite mixed, which points to a continuing need to adapt to the disruptions and uncertainties of the post-pandemic economy.”
The question is whether Beacon Hill can keep Massachusetts competitive as other states aggressively aim to outpace it. That remains a tall order.
This article by Frank Conte appeared as an unsigned editorial in both The Wakefield Daily Item on Tuesday, July 9, 2024 and the Melrose Weekly News on July 12, 2024.
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