State Economic Outlook "Rests on Precarious Footing", Declares MassBenchmarks Editorial Board
Uncertain global economy, aging workforce, and deferred investments weigh on growth prospects.
Economic indicators for the Commonwealth are generally positive, including employment, unemployment, and output. In spite of this, there is a sense that the state economic outlook rests on precarious footing. This largely reflects the uncertain outlook for the global economy, and a recent slowing of U.S. economic growth.
State employment in the first quarter of 2016 grew at a 2.0 percent annual rate compared with the final quarter of 2015. Total wage and salary income grew at a 5.6 percent annual rate during the same period. In the most recent release of the MassBenchmarks Current Economic Index, a proxy measure for the state's gross domestic product, the state continued to outperform the U.S. economy, with an estimated 2.3 percent annualized rate of growth in the first quarter of the year, compared with the national growth rate of 0.5 percent.
The state is experiencing good economic fortunes in an environment characterized by worrisome global conditions. Among the emerging economies, only India seems to have healthy prospects. China's economic growth has slowed and this deceleration is being felt throughout the global supply chain. The resulting negative impacts have been especially severe in countries that export commodities to China. Global debt issues further cloud prospects for the future. There has been a run-up of dollar-denominated private debt in many emerging markets and, as their economic prospects have declined, increasing concern that we may be on the verge of a new debt crisis.
The state's industry mix—specifically the health, education, advanced manufacturing, and high-tech segments of professional and business services—positions the Commonwealth for future growth. The eastern part of the state in particular benefits significantly from these sectors. Concerns continue, however, over conditions that will likely exert downward pressure on the state's long-term growth trajectory. Foremost among them is the age profile of the state's work force. As its median age increases relentlessly, replacing retiring workers with younger ones assumes paramount importance. In that, the state is limited by an educational system plagued by uneven performance and constrained by inadequate investment and resources. Adding to the challenge, importing workers from outside the state is constrained by the high and rising price of housing, especially in the dynamic eastern part of the state. Like much of the nation, the state's infrastructure is in serious need of repair and updating. These issues cry out for public policy solutions.
It seems likely that the state economy will remain on an even keel in the short run. The economic fundamentals for Massachusetts seem strong and stable. However, the risks of a global slowdown have increased, which could impede the state's continuing economic expansion if conditions worsen. External risk factors aside, sustaining economic momentum over the longer term requires that the Commonwealth address conditions over which it has some control—factors that continue to weigh heavily on the its long-term economic outlook. These include education, housing, and infrastructure (including but not limited to transportation).
This summary reflects the discussion of the members of the Editorial Board of MassBenchmarks at its meeting on April 29, 2016. It was prepared by Executive Editor Robert Nakosteen and was reviewed and edited by the members of the Editorial Board. While discussion among the Board members was spirited and individual Board members hold a wide variety of views on current economic conditions, this summary reflects the consensus view of the Board regarding the current state of the Massachusetts economy.
MassBenchmarks is the journal of the Massachusetts economy and is published by the UMass Donahue Institute in collaboration with the Federal Reserve Bank of Boston. Its editorial board is made up of leading economic analysts from across Massachusetts. The opinions expressed by the Editorial Board do not necessarily represent the opinions of the Federal Reserve or the University of Massachusetts.