By PBN Staff
BOSTON – Massachusetts’ real gross state product increased at a 3.9 percent annualized rate during the first quarter, according to the Current Economic Index released Friday by MassBenchmarks.
The report, published by the University of Massachusetts Donahue Institute in collaboration with the Federal Reserve Bank of Boston, said the Massachusetts growth mirrored the growth of the U.S. real domestic product; which grew at an annualized rate of 2.5 percent during the quarter.
Comparatively, during the fourth quarter of 2012, Massachusetts’ economy grew at an annualized rate of 2.4 percent as the U.S. real domestic product was practically stagnant with revised growth of 0.4 percent.
“By any of the fundamental measures of economic growth — employment, income and spending — the Massachusetts economy had an excellent first quarter,” said the MassBenchmarks report.
Payroll employment in the Bay State grew at a 2.9 percent annual rate during the first quarter, and wage and salary income (as estimated from state withholding taxes) grew at a “stunning” 19.9 percent annual rate, said the report, which attributed a significant portion of the income both to end-of-year bonus payments.
“Spending on items subject to regular and motor vehicles sales taxes was also robust in the first quarter, growing at an annual rate of 11.6 percent,” said the report.
Unfortunately, MassBenchmarks said the burst of growth seen in the first quarter was unlikely to be repeated in the second. “The state economy appeared to slow significantly in March with a decline in payroll employment and weaker than expected withholding and sales tax revenues,” said the report.
Massachusetts’ leading index, which is a forecast of the growth in the current index over the next six months, was 3.5 percent in March. For the next six months (through June), the economy is expected to grow at an annualized rate of 3.5 percent.
“The national and state economies are being strongly influenced by two opposing forces,” Alan Clayton-Matthews, MassBenchmarks senior contributing editor and associate professor of economics and public policy at Northeastern University, said in a statement.
“On the one hand, growth in consumer demand is being supported by rising home prices, stock markets and job expansion. On the other hand, fiscal drag in the form of the payroll tax increase and federal budget cuts are slowing the economy,” Clayton-Matthews, who compiles and analyzes the current and leading indices, said in a statement. “This fiscal drag could dampen growth by as much as 1.5 to 2 percentage points this year. And the continuing recession in Europe and an apparent slowdown in China are not helping matters.”
The MassBenchmarks report added that the effects of budget sequestration are already being felt in the Bay State’s scientific research and development sector. Employment levels in this sector were lower at the end of the first quarter than at the end of the 2012 fourth quarter.
“This is striking as this industry had been adding jobs at a relatively rapid pace throughout the recession and the recovery,” said the report.
Opposing the negative effects from federal fiscal policy was strong growth in consumer spending. The report attributed this to steady job growth, a strong stock market and rising home prices. “At this point in time, this positive force is more than counterbalancing the aforementioned negative forces,” said the report.
“While the Commonwealth continues to recover, the federal budget sequestration continues to slow the Commonwealth's leading industries — including health care, higher education, and research and development. Consequently, slower growth in Massachusetts can be expected over the next two quarters,” said the report.