- 77% do not believe the recession in Massachusetts has ended
- 54% think it will take at least two years for the state recession to end
- 70% that the state economy will either get worse (18%) or stay the same (52%) in the next year
- 35% expressed some concern that they might lose their job
However, as this Poll highlights, for many across Massachusetts it doesn’t much feel like a strong recovery is underway. Statewide, consumer and business confidence remain weak, high levels of joblessness in key industries and major regions of the state persist, and the housing slump is entering its sixth year.
Part of the explanation for the disconnect between the undeniably strong macroeconomic performance of the state economy and the “lived experience” of this recovery is revealed by a closer look at the areas of the economy that have been benefiting from this recovery and those that have not. In a number of important respects, this has been a business-led recovery.
A Business-Led Recovery
As measured by the MassBenchmarks Current Economic Index (CEI), the state economy emerged from recession in the summer of 2009 and has grown steadily since. Throughout 2010 the pace of the Commonwealth’s economic expansion has consistently outpaced the U.S., frequently by a substantial margin.
As can be seen below, Massachusetts grew at nearly twice the rate of the U.S. in the first and third quarters and nearly three times as fast in the second quarter.
Growth in Real Product, Massachusetts Current Economic Index (Blue) vs. U.S. GDP (Gray)
The Commonwealth’s “growth premium” appears to be largely a function of the strength of the Massachusetts innovation economy that, unlike recent recessions, helped buffer Massachusetts from the “Great Recession” and has been a growth driver during the recovery period.
Specifically, Massachusetts has benefited significantly and disproportionately from the choices that consumers, firms and investors have been making in how they spend and invest the trillions of dollars in capital that have been injected into the national economy as the result of federal monetary and fiscal policy choices. According to the U.S. Bureau of Economic Analysis, as of the second quarter of 2010, corporate profits had nearly regained their prerecession peak.
Corporate profits before tax with inventory valuation and capital consumption adjustments, (seasonally adjusted annual rate, billions of dollars)
Source: Bureau of Economic Analysis, National Economic Accounts, National Income and Product Accounts, Table 6.16D
To date, while federal stimulus efforts have had a demonstrable and positive impact on the national economy, they have not succeeded in improving the national jobs picture sufficiently to induce a recovery in consumer spending, a prerequisite for more robust national growth in economic activity and job creation.
While weak consumer demand is understandable in light of the nation’s high unemployment rate and uncertain economic outlook, weak demand, along with the current low interest rate environment, helps to explain why businesses have been in a cost-cutting mode, have been reluctant to hire, and have been making significant investments in their future capacity to grow both through spending on inventory replenishment and investment in productivity-enhancing technology products and processes.
According to the most recent U.S. GDP report, investment in equipment and software – a reasonable proxy for investment in innovation and technology sectors – grew by 12 percent between the second and third quarter of 2010 dwarfing the more modest 2.6 percent rise in personal consumption expenditures and a 0.5 percent growth in disposable personal income during the same period.
Business investment is driving current economic growth in Massachusetts
Source: Bureau of Economic Analysis, National Economic Accounts, National Income and Product Accounts Tables 1.5.1, 2.3.2 and 2.1, 3rd quarter 2010 (advance estimate).
Investment in equipment and software declined precipitously in the last half of 2008 but have recovered rapidly since. While the pace of growth has slowed of late, this pattern helps to explain why the innovation-intensive Massachusetts economy has been expanding significantly faster than the more consumer-dependent national economy.
It also helps to explain why sectors that depend on well-educated knowledge workers have benefited while the sectors that traditionally provide employment to more "blue collar" workers have continued to struggle (in some cases mightily).
Our imbalanced recovery underscores the fact that in 21st century Massachusetts, the benefits of economic growth and the substantial income generated by the Massachusetts innovation economy largely accrue to workers and regions that with the necessary brainpower and physical, technological and intellectual infrastructure to compete at a high level in an increasingly competitive and global economy.
As the state’s public and private sector leaders chart the state’s course through these difficult times they would be well advised to keep the lessons of this recovery in mind as they set program and investment priorities. Extending the opportunity for more Massachusetts communities and families to contribute to and benefit from the state’s extraordinary innovation economy should be a central goal of state economic and workforce development policies in the years ahead.
Upgrading the skills of our workers and expanding the innovative capacity of all of our regions will not be easy and it will not happen overnight. However, ensuring that all of the state’s regions and working families have the opportunity to reap the benefits during periods of prosperity and share the pain during difficult economic periods is what we must do if we are to truly fulfill the promise of being a Commonwealth.
