The Transitioning Massachusetts Economy

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1 The Transitioning Massachusetts Economy Alan Clayton-Matthews School of Public Policy and Urban Affairs Northeastern University February 4, 2011 MassEcon Members Meeting

2 Quarterly Growth at Annual Rates The Massachusetts economy pauses to catch its breath. 8.0 Growth in Real Product, Massachusetts Current Economic Index vs. U.S. GDP Source: U.S., Bureau of Economic Analysis; Massachusetts, Massachusetts Benchmarks Projected MA US

3 The state has had worse recessions Growth in Current Economic Index, Massachusetts Source: Alan Clayton-Matthews Massachusetts Recessions: March April 1980 (1 month) July December 1981 (5 months) January August 1991 (31 months) (-9.6%) February February 2003 (24 months) (-2.6%) May August 2009 (15 months) (-4.0%)

4 Growth From Same Month Prior Year (%) This recession was not like the prior two. Massachusetts and U.S. Payroll Employment Growth 8.0 Source: U.S. Bureau of Labor Statistics MA US

5 Growth From Same Month Prior Year (%) Massachusetts suffered less than the U.S. Massachusetts and U.S. Payroll Employment Growth 3.0 Source: U.S. Bureau of Labor Statistics MA US

6 Thousands of Jobs Strong job gains in the first half of 2010 followed by no growth in the second half. Payroll Employment, Massachusetts 3, , , , , ,

7 State unemployment has fallen significantly, but is still high Unemployment and Underemployment Rate Source: U.S. Bureau of Labor Statistics. The unemployment rate is the official unemployment rate as released by the BLS. The underemployment rate is from the monthy CPS surveys. The Massachusetts underemployment rate is seasonally adjusted and smoot hed * Total unemployed plus all marginally attached workers plus total employed part time for economic reasons as a percent of the civilian labor force plus all marginally attached workers MA Underemployed * Trend US Underemployed * MA Unemployed US Unemployed

8 00 Jun-00 Nov-00 Apr-01 Sep-01 Feb-02 Jul-02 Dec-02 May-03 Oct-03 Mar-04 Aug Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 May-08 Oct-08 Mar-09 Aug Jun-10 Nov Jun-00 Nov-00 Apr-01 Sep-01 Feb-02 Jul-02 Dec-02 May-03 Oct-03 Mar-04 Aug Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 May-08 Oct-08 Mar-09 Aug Jun-10 Nov Jun-00 Nov-00 Apr-01 Sep-01 Feb-02 Jul-02 Dec-02 May-03 Oct-03 Mar-04 Aug Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 May-08 Oct-08 Mar-09 Aug Jun-10 Nov Jun-00 Nov-00 Apr-01 Sep-01 Feb-02 Jul-02 Dec-02 May-03 Oct-03 Mar-04 Aug Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 May-08 Oct-08 Mar-09 Aug Jun-10 Nov-10 Massachusetts unemployment rates by demographics. 12 Unemployment Rates by Sex 14 Unemployment Rates by Minority Status urtotal urmale urfemale 6 urmajority urminority Unemployment Rates by Age 25 Unemployment Rates by Educational Attainment ur24 ur2554 ur urlths urhs ursomecol urba

9 # in month The problem is slow hiring, not layoffs. Initial Unemployment Claims, Massachusetts 65,000 Source: DUA, seasonally adjusted by author 60,000 55,000 50,000 45,000 40,000 35,000 30,000 25,

10 Millions of Dollars State wage and salary growth has slowed, but is still solid. 92,000 Real Withholding Tax Base (SA), with Smoothed Trend 90,000 88,000 86,000 withbr_sa Smoothed Trend Lower 90% CI Upper 90% CI 84,000 82,000 80,

11 Millions of Dollars Spending on items subject to the regular sales tax is flat, but that is consistent with growth. 30,000 Real Sales Tax Base (SA), with Smoothed Trend 29,000 28,000 27,000 26,000 25,000 salesbr_sa Smoothed Trend Lower 90% CI Upper 90% CI 24,000 23,000 22,

12 Spending on taxable sales items has been declining as a percent of personal income. 40.0% Goods (US) or spending on items subject to the regular sales and motor vehicle taxes (MA) as a percent of personal income. 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% US MA regular sales and motor vehicles MA regular sales MA motor vehicles

13 2007=100 A V-shaped recession and recovery in information technology. Semiconductor Billings Source: Semiconductor Industry Association, seasonally adjusted World Europe Japan Americas Asia Pacific

14 $ Millions, 3-mo mov. Avg. 3,500.0 Worldwide Semiconductor Equipment Billings and Bookings Source: Semiconductor Equipment and Materials International 3, , , , , Billings Bookings

15 Shipments, New Orders, Inventories ($M) Unfilled Orders ($M) 70,000 Source: Census Bureau Computers and Electronic Products, U.S. 140,000 65,000 60, ,000 55, ,000 50,000 45, ,000 40,000 35, ,000 30,000 90,000 25,000 20, ,000 Value of Shipments New Orders Inventories Unfilled Orders

16 Nominal growth from prior quarter at annual rate (%) U.S. Investment in Information and Processing Equipment and Software Source: U.S. Bureau of Economic Analysis, NIPA Accounts

17 2007=100 Output levels are at or are higher than pre-recession levels. Industrial Production: Information Processing Equipment, U.S

18 1998=100 State exports weakened in the fall. Merchandise Exports, Seaonally Adjusted Source: WISER, seasonally adjusted by NU US MA

19 High unemployment extends the housing slump Case Shiller Boston Home Price Index

20 A recovery in sales? MassachusettsSingle Family Home Sales 5,000 Source: Mass. Assoc. of Realtors, Seasonally Adjusted by NU 4,500 4,000 3,500 3,000 2,500 2,

21 Waiting for a sales recovery Massachusetts Single Family Housing Permits 1,600 Number per Month, Seasonally Adjusted 1,400 1,200 1, Source: Census Bureau, Seasonally Adjusted by Author

22 Average Annual Growth Forecast Period Payroll Employment Wage and Salary Disbursements (WSD) Personal Income WSD per Payroll Worker Population Income Deflator (PCE U.S.) Real Gross State Product Personal Income Per Capita Personal Income WSD per Payroll Worker Growth in each period is the annualized growth rate over the following quarters: 09: 2008Q4 to 2009Q4 10: 2009Q4 to 2010Q4 11: 2010Q4 to 2011Q4 12: 2011Q4 to 2012Q : 2012Q4 to 2014Q4 Forecast Period: 2010Q2 to 2014Q4

23 Quarterly Growth at Annual Rates Employment growth will be stronger than in the last expansion, but will still trail the U.S., partly because Employment Growth, Massachusetts vs. U.S. 10 Sources: NEEP, Moody's Analytics MA U.S.

24 Thousands, Annual Rate The state s aging population will slow labor force growth. Labor Force Participation Rate, Massachusetts 67.0 Source: NEEP, Moody's Analytics q1 82q1 84q1 86q1 88q1 90q1 92q1 94q1 96q1 98q1 00q1 02q1 04q1 06q1 08q1 10q1 12q1 14q1

25 2008q4=100 Employment will reach its pre-recession level in early Payroll Employment, Massachusetts Source: NEEP, Moody's Analytics Education & Health Services Professional and Business Services Leisure and Hospitality Government Other Services Total Payroll Information Financial Activities q1 09q1 10q1 11q1 12q1 13q1 14q1 Trade, Transportation, Utilities Manufacturing Construction

26 2008q4=100 Relative sector growth in jobs reflects the state s position in the global economy Payroll Employment, Massachusetts Source: NEEP, Moody's Analytics q1 11q1 12q1 13q1 14q1 Professional and Business Services Construction Leisure and Hospitality Education & Health Services Information Total Payroll Financial Activities Other Services Manufacturing Trade, Transportation, Utilities Government

27 $Millions State revenues will recover, but 29,000 Fiscal Year State Revenue Collections 27,000 25,000 Source: Author's projections based on Global Insight U.S. outlook of March ,000 21,000 19,000 17,000 15, Fiscal Year

28 Thousands of Dollars per Month the structural deficit is too big to fill by growth alone. 2,000,000 Total DOR Tax Revenue, Seasonally Adjusted and Smoothed, vs. Trend Source: DOR, author's calculations 1,800,000 6% Growth Trend 1,600,000 1,400,000 1,200,000 3% Growth Trend 1,000, , Revenues, SA and Smoothed 3% Trend 6% Trend

29 Wealthy states tend to choose higher levels of public goods and services.

The Massachusetts Economy: Downshifting into Second Gear?

The Massachusetts Economy: Downshifting into Second Gear? Alan Clayton-Matthews School of Public Policy and Urban Affairs Northeastern University Presented to MassEcon January 20, 2012 Quarterly Growth