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A program of the Economic and Public Policy Research Group at the UMass Donahue Institute
in collaboration with the Federal Reserve Bank of Boston

Notes from the Board

Sluggish state economy at the mercy of federal policy makers declares the MassBenchmarks Editorial Board

Younger, less skilled workers have yet to experience recovery leading regional economists report.

After coming out of the recession more quickly than the nation, in recent months the Massachusetts economy has been growing sluggishly. The state unemployment rate has been rising even as the national rate has been falling. Particularly for young workers and those with less than a college education, conditions remain challenging with little hope for much change in the immediate future.

To be sure, some indicators continue to bode well for the Massachusetts economy. Most importantly, the state housing market is emerging from a seven-year slump. House prices, building permits, and construction employment have ticked up, and the recent decline in state export activity appears to be leveling off. Moreover, unemployment rates for the well-educated are strikingly low and income growth for these "knowledge workers" has been solid.

On the flip side, however, the state economy has begun to feel the impact of reductions in the federal budget. Massachusetts relies heavily on federal dollars that support its robust and highly productive health, defense, and higher educational sectors, which are at the center of the Commonwealth's world-class innovation economy.

The Board remains especially concerned about the ongoing impact of federal budget sequestration, which involves significant across-the-board cuts in many federal programs. Grants and contracts already in force do not come to an immediate end, and anecdotal reports suggest that companies that rely on federal contracts have resisted laying off staff in the hope that the sequester will be reversed or modified. However, hopes for a reprieve are dimming and absent an unexpected change in policy, in coming months these organizations will be under increasing pressure to reduce their expenses. Compounding these problems is the federal government shutdown and the far more serious prospect of a debt ceiling crisis.

Meanwhile, large segments of the state's population continue to experience economic distress. The average spell of unemployment is longer than in recent memory. Young labor force entrants are finding it very difficult to land a job, especially one that pays a living wage and takes full advantage of their qualifications. Many part-time workers would be working full time if the opportunity arose. These troubling patterns are not new but their persistence should serve to remind policymakers that the recovery to date has left many people behind. They should also inspire state and local leaders to redouble their efforts to extend more and better economic opportunities to every household and every community across the Commonwealth.

Most disturbing is the fact that ongoing state and local efforts are being undermined by the unfortunate choices being made by national leaders. The sequester, the budget battle, and debt limit brinksmanship threaten our fragile and sluggish recovery and only extend the pain being experienced by families and businesses still awaiting an opportunity to participate in a recovery that is now several years old.

This summary reflects the discussion of the members of the Editorial Board of MassBenchmarks at its meeting on September 20, 2013. 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.

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