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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).

For more information, please contact:
Robert Nakosteen Executive Editor, MassBenchmarks Professor of Economics and Statistics, UMass Amherst 413-545-5687 nakosteen@isenberg.umass.edu
Michael Goodman Co-Editor, MassBenchmarks Executive Director, the Public Policy Center (PPC) Associate Professor of Public Policy UMass Dartmouth (617) 823-2770 mgoodman@umassd.edu		Katharine Bradbury Co-Editor, MassBenchmarks Senior Economist and Advisor Federal Reserve Bank of Boston (617) 973-3192 Katharine.Bradbury@bos.frb.org
Mark Melnik Senior Managing Editor, MassBenchmarks Director, Economic and Public Policy Research University of Massachusetts Donahue Institute 617-287-3988 mmelnik@donahue.umassp.edu		Alan Clayton-Matthews Senior Contributing Editor, MassBenchmarks Professor and Director of Quantitative Methods School of Public Policy and Urban Affairs Northeastern University (617) 512-6224 a.clayton-matthews@neu.edu

MassBenchmarks Editorial Board

Frederick Breimyer, Federal Deposit Insurance Corporation
Lynn Browne, Brandeis University; Federal Reserve Bank of Boston (retired)
Mary Burke, Federal Reserve Bank of Boston
Karl Case, Wellesley College
Peter Doeringer, Boston University
Robert Forrant, University of Massachusetts Lowell
Yolanda Kodrzycki, Federal Reserve Bank of Boston
Frank Levy, Massachusetts Institute of Technology
Alicia Sasser Modestino, Northeastern University
Christopher Probyn, State Street Bank
James Stock, Harvard University
David Terkla, University of Massachusetts Boston
Paul Willen, Federal Reserve Bank of Boston

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