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Thursday, March 26, 2009

   Massachusetts Economy Continues its Rapid Descent
   Labor market woes approaching levels not seen since early 1990s

The Massachusetts economy contracted at a 4.2 percent annualized rate in February according to the latest MassBenchmarks Current Economic Index. Recent data revisions indicate that the state economy declined at a 4.7 percent annualized rate in the fourth quarter of 2008, substantially worse than the 3.5 percent decline previously reported but comparatively better than the 6.3 percent annual rate of contraction the US experienced during the same period. The MassBenchmarks Leading Economic Index for February was minus 3.8 percent, and the three-month average for December through February was minus 3.6 percent. The leading index is a forecast of the growth in the current index over the next six months, expressed at an annual rate. Thus, it indicates that the economy is expected to contract at an annualized rate of 3.8 percent over the next six months (through August, 2009).

Real Massachusetts gross state product is projected to decline at a 4.7 percent annualized rate in the first quarter of this year, and at a 3.9 percent annualized rate in the second quarter. These projections are based on the estimated performance of the state’s economy in January and February, as estimated by the MassBenchmarks Current Economic Index, and a monthly pace of decline at an annualized rate of 3.8 percent rate thereafter.

“In recent months, the state’s economy has declined at a rapid rate. Measures of unemployment have been rising at a dizzying pace,” noted Alan Clayton-Matthews, MassBenchmarks co-editor and UMass Boston professor. “In February the unemployment rate rose to 7.8 percent, a level not seen since March, 1993. At the current pace, the peak unemployment rate of the severe 1989-91 recession — 9.1 percent — will be surpassed in a few more months,” Clayton-Matthews added.

A broader unemployment rate measure for Massachusetts, the so-called “U-6” which includes those employed part time for economic reasons, and those who looked for work recently, but not in the last four weeks, was 12.2 percent in January on a seasonally adjusted basis. For the U.S. as a whole, the U-6 measure was 13.9 percent in January and 14.8 percent in February. The February measure for Massachusetts is not yet available.

While current economic indicators are sobering, there are some reasons for cautious optimism. Employment in education and health services is still growing, albeit very slowly, and over the past couple of weeks the Bloomberg stock price index for Massachusetts has rallied. Finally, the MassBenchmarks Leading Economic Index is suggesting that the pace of decline may be about to slow, which would be consistent with the view that the bottom could be reached before the year is out.

MassBenchmarks releases are published by the University of Massachusetts Donahue Institute in cooperation with the Federal Reserve Bank of Boston. The Donahue Institute is the public service, outreach, and economic development unit of the University of Massachusetts Office of the President. The current and leading economic indexes are complied and analyzed by Dr. Clayton-Matthews and released monthly by the UMass Donahue Institute.

For a full breakdown of the latest indexes, click here. A comprehensive analysis of the state of the Massachusetts economy can be found in the most recent issue of MassBenchmarks.

For more information, please contact:

MassBenchmarks Regional Analysts

For timely and comprehensive analysis of the Massachusetts economy, please visit MassBenchmarks at www.massbenchmarks.org.

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