, Salem, MA


May 1, 2013

Our view: State's good economic news may be short-lived

Anyone looking for a bit of good economic news to digest along with the recent spate of sunny weather should familiarize themselves with the latest report from the University of Massachusetts and the Federal Reserve Bank of Boston.

The MassBenchmarks report showed the state’s economy grew 3.9 percent in the first quarter of the year. That’s up from a somewhat-weak 2.4 percent growth in the last quarter of 2012. Employment was up, and pay increased by about 20 percent in the quarter. The stock market has been strong, home prices are on the rise and spending on discretionary items — think TVs, cars and dishwashers — grew at a rate of 11.6 percent.

Economists, however, warn that it may be too soon to celebrate, as a weak March, rising payroll taxes and the continued battle over sequestration in Washington, D.C., make a repeat of the first-quarter success unlikely, at least in the short term.

“The national and state economies are being strongly influenced by two opposing forces,” Alan Clayton-Matthews, the Northeastern professor who compiles the information, said in the report. “On the one hand, growth in consumer demand is being supported by rising home prices, stock markets and job expansion. On the other hand, fiscal drag in the form of the payroll tax increase and federal budget cuts are slowing the economy. This fiscal drag could dampen growth by as much as 1.5 to 2 percentage points this year. And the continuing recession in Europe and an apparent slowdown in China are not helping matters.”

The report noted that sequestration has had a tangible effect on Bay State employment, especially in the “scientific and research sector, which is heavily influenced by federal grant spending in health and science. Employment levels in this key sector were lower at the end of the first quarter than last December. This is striking, as this industry had been adding jobs at a relatively rapid pace throughout the recession and recovery.”

The takeaway? Businesses are hiring, and consumers are spending. Now it’s time for Congress to do its part and address the job-killing effects of sequestration.

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