Federal Budget Cuts Would Impact Bay State
BOSTON — With a precarious economic recovery to preserve, currently mandated federal spending cuts of $1.2 trillion over the next 10 years are set to begin in 2013. The Budget Control Act of 2011 requires that these cuts be split equally between defense and non-defense programs, and they include reductions to Medicare and other mandatory spending programs. Assuming that the cuts will be enacted in accordance with the Budget Control Act, MassBenchmarks used REMI, a forecasting and comprehensive economic tool that answers ‘what-if’ questions about the state’s economy, to estimate the potential impact the cuts would have in Massachusetts. MassBenchmarks is published by the UMass Donahue Institute in cooperation with the Federal Reserve Bank of Boston. The Donahue Institute is the public-service, outreach, and economic-development unit of the UMass Office of the President. While Massachusetts relies heavily on federal defense spending, other leading industries would also be substantially affected, including professional and technical services, health care, and social assistance, resulting in approximately 52,000 jobs lost, according to the study. The types of jobs expected to be lost range widely, but on average they require higher levels of educational attainment and are high-paying with benefits. Significantly, they are within the sectors that have allowed the Massachusetts economy to outperform the nation in recent years, a fact that underscores the stakes for the Bay State in ongoing federal budget debates, according to Dr. Martin Romitti, MassBenchmarks managing editor and director of economic and public policy. “A reduction in state employment of 52,000 is more than 20% larger than the entire net increase in employment the Commonwealth experienced during 2011, when net job growth was an estimated 40,500,” said Romitti. “The pattern of these job losses strike at the very heart of the Massachusetts innovation economy. In addition to the 10,000+ federal civilian and military jobs that our model estimates would be lost, other leading industries would be substantially affected.” The study estimates that professional and technical services would experience a loss of nearly 10,000, health care and social assistance would lose more than 6,000. “What is not captured fully by these numbers is the collateral damage the cuts could trigger,” Romitti continued. “There is no way to conjecture what future innovations would be lost without the support to the state’s high-technology sector provided by federal dollars. A large number of important inventions and innovations in modern times can be traced to federal support of research and development.” Dr. Robert Nakosteen, MassBenchmarks executive editor and professor of Economics at UMass Amherst, echoed those sentiments. “These clusters require a critical mass of activity to thrive, and large federal budget cuts threaten this diverse community of firms,” he said. “These budget and job cuts are not inevitable. Congress and the president could finally agree on a grand bargain to rationalize budget cuts and combine them with revenue increases. The allocation of cuts could also be very different than our assumptions in making these estimates, which are based on the sequestration rules and past patterns of sector-specific expenditures in Massachusetts. It is possible, for instance … that a leaner military could depend on more high-technology support systems, favoring the state’s comparative advantage.”
Report: Bank Customer Switching Rates Rise Again
WESTLAKE VILLAGE, Calif. — Consumer backlash against bank fees, coupled with poor service and unmet customer expectations, has fueled increases in defection rates among customers of large, regional, and midsize banks, according to the J.D. Power and Associates 2012 U.S. Bank Customer Switching and Acquisition Study recently released. On the heels of Bank Transfer Day on Nov. 5, 2011, the beneficiaries of the accelerated exodus from larger banks are primarily smaller banks and credit unions. Acquisition of new customers by smaller banks and credit unions has increased by 2.2 percentage points to an average of 10.3% in 2012 from 8.1% in 2011. Among big banks, regional banks, and midsize banks, switching rates average between 10% and 11.3%, while the defection rate for small banks and credit unions averages only 0.9%, a significant drop from 8.8% in 2011. The study, which examines the bank shopping and selection process, finds that 9.6% of customers in 2012 indicate they switched their primary banking institution during the past year to a new provider. This is up from 8.7% in 2011 and 7.7% in 2010. The study finds that, not unexpectedly, fees are the main reason customers shop for a new primary bank. In particular, one-third of customers of big and large regional banks cite fees as the main shopping trigger. “When banks announce the implementation of new fees, public reaction can be quite volatile and result in customers voting with their feet,” said Michael Beird, director of the banking services practice at J.D. Power and Associates. However, according to Beird, customers weigh the price they pay against the value of their experience. “It is apparent that new or increased fees are the proverbial straws that break the camel’s back,” said Beird. “Service experiences that fall below customer expectations are a powerful influencer that primes customers for switching once a subsequent event gives them a final reason to defect. Regardless of bank size, more than one-half of all customers who said fees were the main reason to shop for another bank also indicated that their prior bank provided poor service.” In capturing customers who are shopping for a new bank, several of the more successful banks achieve higher acquisition rates through the use of promotions and cash incentives. Nearly 20% of customers indicate these promotions were the reason they selected their new bank. However, according to Beird, doing a good job for customers is not just about dollars, but also about loyalty and retention. “Only 32% of customers who selected a new bank because of promotional offerings said they definitely would not switch banks again in the next 12 months,” he said. “In comparison, 46% to 51% of customers who chose the new bank because of either good service experience or positive recommendations say they definitely will not leave within the next year.”
Students Protest Community-college
HOLYOKE — Occupy Holyoke Community College (OHCC) facilitated a campus-wide student walkout at the college on March 1 as part of a nationwide day of student action. The event took place on the plaza and featured speakers, music, and a speak-out. It was noted that students “are deeply concerned with Gov. Deval Patrick’s plan to consolidate the community-college boards of Massachusetts.” Speakers cited research that indicates that the student voice has been shut out of this decision. Overall, students felt “disheartened” that Patrick would target a plan for workforce development at schools that serve a diverse student population that includes low-income and non-traditional students. Protest organizers noted that a petition circulated that day stated that students will not allow the campus to become a location “simply used for job training.” The petition will be delivered to Patrick’s office in the coming weeks.