Mass Economy Bounces Back in Q2 2014, UMass Journal Reports

BOSTON — Massachusetts real gross domestic product grew at an estimated annual rate of 4.9% in the second quarter of 2014 according to the MassBenchmarks Current Economic Index, released Wednesday by MassBenchmarks, the journal of the Massachusetts economy published by the UMass Donahue Institute in collaboration with the Federal Reserve Bank of Boston. In contrast, according to the U.S. Department of Commerce, national real gross domestic product grew at an annual rate of 4.0% in the second quarter based on the advance estimate of the U.S. Bureau of Economic Analysis. 

State and U.S. economic growth bounced back from the surprisingly weak first quarter as labor markets gained strength both locally and nationally. Based on the most recent data available, MassBenchmarks now estimates that in the first quarter of 2014, the state’s economy contracted at an estimated annual rate of 0.3%, while the U.S. economy declined at an annual rate of 2.1%. “The steep downward revision in the estimate of Massachusetts economic growth for the first quarter (originally reported as positive 2.6%) is primarily due to the correspondingly large downward revision in U.S. economic growth in the first quarter, originally reported as positive 0.1%,” noted Alan Clayton-Matthews, MassBenchmarks’ senior contributing editor and associate professor of Economics and Public Policy at Northeastern University, who compiles and analyzes the Current and Leading Indexes.

”The downward revisions in U.S. GDP reflect large reductions in two components — consumer spending and exports — that were most affected by the unusually harsh winter weather. This sharply lowered estimates of national and state productivity growth, meaning fewer business sales per employee and thus a significant reduction in the first quarter estimates of economic growth,” Clayton-Matthews added. Massachusetts payroll employment grew at a 1.7% annual rate in the second quarter, up from 1.2% in the first quarter; while U.S. payroll employment grew at a 2.2% annual rate in the second quarter up from 1.5% in the first quarter. During the second quarter, the unemployment rate in Massachusetts fell from 6.3% (in March) to 5.5% (in June), while the U.S. unemployment rate fell from 6.7% to 6.1% during the same period. Year to date (through June), the state’s unemployment rate has fallen 1.6 percentage points while the national unemployment rate has fallen 0.6 percentage points. Wage and salary income declined at an 11.6% annual rate in the first quarter, as estimated from state withholding taxes. This does not necessarily imply a drop in regular earnings but rather it likely reflects the strong wage and salary income growth over the previous two quarters (12 to 15%) due to bonuses and other non-regular lump-sum wage payments. Year over year (between second quarter 2013 and second quarter 2014), total wage and salary income was up 3.4%. Consumer spending in Massachusetts continued to grow strongly in the second quarter. Spending on items subject to the state’s regular sales and motor vehicles sales taxes — a good proxy for consumer discretionary spending — grew at an annual rate of 7.4% in the second quarter, up from a 6.1% rate in the first quarter. By this measure, year over year (second quarter 2013 to second quarter 2014) spending on these taxable items in the Bay State has grown 7.0%. The MassBenchmarks Leading Economic Index for June was 3.8%, and the three-month average for April through June was 4.0%. 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 grow at an annualized rate of 3.8% over the next six months (through December 2014).