Pace of State Economic Growth Remains Weak in Second Quarter
AMHERST — In the second quarter of 2022, Massachusetts real gross domestic product decreased at a 0.2% annualized rate, according to MassBenchmarks, while U.S. GDP decreased at a 0.9% rate, according to the U.S. Bureau of Economic Analysis (BEA). In the first quarter of this year, according to the BEA, Massachusetts GDP grew at an annual rate of 0.2% while U.S. GDP declined at an annual rate of 1.6%.
“Economic growth in both the U.S. and Massachusetts slowed very significantly in the first half of this year despite a strong labor market with good employment gains, a low unemployment rate, and a surplus of job openings,” noted Alan Clayton-Matthews, senior contributing editor and professor emeritus of Economics and Public Policy at Northeastern University, who compiles and analyzes the current and leading indices for MassBenchmarks.
According to Clayton-Matthews, the apparent paradox described above can be explained by several conditions that are shared by both the nation and the state that have resulted in lower productivity per worker. First, job growth has been concentrated in relatively lower-paid sectors, such as leisure and hospitality, that tend to employ lower-skilled workers. Second, as a response to the scarcity of labor in high-demand fields, employers have been ‘labor hoarding’ or holding on to workers despite slowdowns in demand and lower utilization of employees. As a third factor, COVID-19 has increased absences from work, whether for illness or care of a sick family member.
Inflation is also playing a role. Per-worker wages and salaries are not keeping up with inflation, and on average are falling in real terms. Total personal incomes, though rising, are just barely keeping up with inflation. This limits real consumer spending, which accounts for approximately two-thirds of all economic activity. Finally, rising interest rates are slowing the economy, reducing the demand for residential construction, and lowering asset prices, with predictable indirect effects on consumer and business confidence, which can be expected to dampen current and future spending.
The outlook for the rest of the year is for slow growth, but the level of uncertainty remains high. MassBenchmarks estimates the annualized rate of real GDP growth for Massachusetts will be 1.0% in the third quarter and 2.0% in the fourth quarter. The mean forecast from the July Wall Street Journal survey of economists for the U.S. is 1.5%in the third quarter and 1.1% in the fourth quarter. Measures of consumer confidence and business confidence — for example, from the Conference Board for the U.S. and from the Associated Industries of Massachusetts for Massachusetts businesses — are falling, and various surveys of economists put the probability of a U.S. recession in the next 12 months at roughly 50%.