MassBenchmarks: Federal policies slow Mass. economy

CONTRADICTORY FEDERAL FISCAL policies continue to effect economic growth in Massachusetts, according to a report from MassBenchmarks.  / BLOOMBERG FILE PHOTO/BRENT LEWIN
CONTRADICTORY FEDERAL FISCAL policies continue to effect economic growth in Massachusetts, according to a report from MassBenchmarks. / BLOOMBERG FILE PHOTO/BRENT LEWIN

BOSTON – The fiscal policies of the federal government are slowing the economy in the Bay State, according to the latest report from the MassBenchmarks editorial board, released Thursday.

MassBenchmarks is the journal of the Massachusetts economy published by the University of Massachusetts’ Donahue Institute in collaboration with the Federal Reserve Bank of Boston.

“Even as the Massachusetts economy shows some genuine signs of strength, contractionary federal government fiscal policy is manifestly slowing economic growth in Massachusetts,” said the board’s report.

As the economic growth of Massachusetts continues to slow, the state’s labor market continues to bear “considerable stress” and faces “profound challenges that are not fully reflected in the state’s headline unemployment rate,” said the report.

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Massachusetts’ jobless rate still remains one percentage point less than the national average.

The report called the housing market the “most prominent” sign of strength in the state’s economy, with residential home prices, sales and building permits all on the rise. As building permits have picked up, so has employment in the construction sector, though the report added that it remains “well below” pre-recession levels.

According to the board, strong state sales tax collections reflect the willingness of Massacshustts households to spend, especially on new automobiles.

“But these signs of life are being undermined by federal tax and budget policies that have been implemented since the first of the year,” said the report, pointing first toward tax-related issues. On the first of the year, income tax rates were increased for upper income households and the temporary payroll tax cut implemented during the recession was not extended.

“This has a more widespread impact, with a disproportionate burden being placed on low-income households,” said the report. “Had these tax increases been offset by increased federal investment, their impact would have been modest, but instead the federal government elected to adopt significant spending cuts.”

The federal budget sequestration implemented in March has had an “obvious impact on the state’s research-intensive enterprises and government contractors,” said the report.

Also affected by sequestration were: Head Start and other educational programs, career centers and job training services, and Community Development Block Grant funds, all of which have experienced “significant cuts” since sequestration took effect.

“The impact of these federal policies can be seen in the state’s recent economic performance,” said the report.

The MassBenchmarks Current Economic Index said that growth in the state’s gross domestic product slowed to a 1 percent annualized rate in April and May and that employment growth in the state has “virtually stalled.”

The index showed that growing international competition and the economic challenges facing Massachusetts’ major trading partners – in Canada, Europe and Asia – appear to be taking their toll on the Bay State’s export activity, which dropped by 11.1 percent between April 2012 and April 2013.

“While labor conditions in Massachusetts appear to be better than those nationally, there are signs of considerable stress in the state labor market,” said the report.

Underemployment – those working part-time but seeking full-time work – has risen during the first five months of the year. And hidden unemployment – those who are out of work, have not looked for a job in the last four weeks, but would take a job if offered – is also on the rise.

“The plight of younger and less skilled workers is of particular concern as the extent of their disconnection from the labor market is troublingly high, and the longer it lasts the more difficult it will be to remedy,” said the report. “For these workers, the improvement in headline unemployment is of little consolation, as their prospects for employment are being limited by a recovery that is being undermined by counterproductive federal policy choices.”

To view the full report, visit: www.massbenchmarks.org.

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