Slow Going

The Region Is Still Struggling to Recover from the Great Recession

Recent statistics show that the Bay State is outpacing the nation when it comes to job creation and economic expansion since the recession officially ended roughly a year ago. But Western Mass. is not enjoying the same kind of recovery as the Boston area, primarily because its mix of businesses doesn’t lend itself to profound growth, say economists, and job growth has been negligible. This is not surprising, they say, but rather indicative of an east-west divide that this region has historically struggled to close.

Alan Clayton Matthews says Western Massachusetts is probably not officially still in a recession — although it’s very close to the line, by his estimates — but he wouldn’t blame anyone for thinking that it was.
“It certainly feels that way — there’s still negative job growth on the order of 3% year over year, and it may well be that gross output in Springfield is still declining,” said Matthews, contributing editor to the quarterly Mass Benchmarks, which charts the state of the economy in the Commonwealth. He noted that, while the Bay State as a whole has been growing at about a 6% clip for the past few quarters (far ahead of the national pace), Western Mass. hasn’t enjoyed anything approaching that rate of expansion.
“There’s been no recovery from this recession in Springfield to speak of,” said Matthews. “Year-over-year change in payroll employment has gone up 1.2% statewide, while there’s been no growth nationally. In the Springfield area, it’s declined 3.2%, so it’s been quite a different story there.”
Bob Nakosteen, a professor of Economics at the Isenberg School of Management at UMass Amherst, agreed. He said the discrepancy between what’s happening in the Boston area and in Greater Springfield, “shows more dramatically than ever the east-west divide.”
He chose that terminology to convey the sentiment that this region, known for not having the profound highs and subsequent lows that other regions experience, is simply not recovering from the Great Recession with any degree of vibrancy, and probably won’t for some time to come.
“Employment is going up in Boston, and it’s going down here,” he said, adding that jobs are perhaps the strongest indicator of the divide, but not the only one. “The regions are heading in different directions, and the difference in the numbers shows just how wide that divide has become.”
In the shorter term, Western Mass. will eventually see a bounce, said Matthews, noting that, historically, economic expansions in this state move east to west, and this one will almost certainly follow that pattern. Longer-term, though, the region must further diversify its economic base with technology-related manufacturers and larger employers, he continued, adding that, at present, this area simply doesn’t have the proper mix to generate a job growth and a pronounced recovery.
“In the Boston area, 9.8% of employment [in 2008] was in professional and technical services, and those tend to be high-paying jobs,” he explained. “In Hampden County, that number is only 2.8%; that’s a quite a difference.”
For this issue, BusinessWest looks at the short-term economic forecast for the region, and that east-west divide, the reasons for it, and the prospects for closing the gap any time soon.

Experiencing Some Turbulence
“Headwinds.”
That’s the term Nakosteen chose to describe what this region — and the nation as a whole — will be facing as the fourth quarter approaches, a time when hiring historically picks up.
These headwinds include the dissipating impact of federal stimulus programs, which have provided some sparks and kept things from getting worse than they are, said Nakosteen, as well as an ongoing lack of confidence among consumers, as evidenced by sluggish back-to-school sales, a still-struggling housing market, and a financial-services sector that remains what he called a “mess.”
Nakosteen told BusinessWest that he doubts that the nation as a whole will fall back into recession — the dreaded double dip; “we’re still a long way from that, but it could happen” — but be believes expansion will be modest for at least the next few quarters and slow in coming, especially for the Western Mass. region.
“There are a lot of doubts about whether the economy can sustain itself absent the stimulus,” he said. “In any case, things are going to be very sluggish, and it’s going to feel like we’re in a recession in terms of employment and the housing market, even if, ultimately, we’re not in one.”
The potent mix of headwinds will test the Bay State as a whole to continue its strong, steady pace of expansion, said Matthews, noting that the rate of growth is already slowing and will likely be closer to 4% than 6% for the third quarter, which will end Sept. 30. And for Western Mass., they will make it more difficult to really dig out of the recession and improve on unemployment figures that are north of 10% for the region and above 14% in Springfield, he continued.
Elaborating, he said that expansions do indeed move from Boston westward, “but it takes a while.” And the current conditions may make for a longer while with this cycle than what might be considered typical. “This expansion will have to continue on for quite a while before Springfield sees any real improvement.”
Dissecting the east-west divide, both Matthews and Nakosteen said it is really nothing new, but perhaps more pronounced than ever, due to several factors.
One is the emergence of technology-related sectors, or clusters, in Eastern Mass. that are enabling that region to bounce back more quickly and profoundly, and much smaller numbers of such jobs in this area.
“The largest growth in the first quarter of the year when it comes to national GDP [gross domestic product] was in business investment,” he explained, “and many of those investments came in high-tech areas, and that’s what the eastern part of the state specializes in. We don’t have that kind of mix here; the manufacturing in this region is mostly what would be called ‘low-tech’ in nature.

Work in Progress
Another factor, said Matthews, is that, unlike in the Boston area, major employers in Western Mass. are simply not adding large numbers of workers. In fact, many are still cutting workforces.
This is the case in health care, historically one of the region’s strongest sectors for employment, said Nakosteen, as several hospitals have pared workers or limited hiring in the face of economic pressures resulting from the stagnant economy (see related story, page 43).
“I’ve heard stories about nursing graduates who, two years ago, would have had several job offers, but now can’t get an offer,” he said. “That represents a real change, and it doesn’t bode well for an area so dependent on the health care sector.”
Kathleen McCormack-Batterson, director of Strategic Recruiting at MassMutual, said the financial-services giant did have some layoffs in 2008 and 2009 as a result of the recession, but said there was a pronounced spike in hiring that accompanied a reorganization in 2007, and, overall, hiring at the company has been steady and consistent in recent years.
“I have 125 open requisitions in the system right now,” she said, noting that these slots represent both new hirings and the filling of vacancies created by departures and retirements, and she would consider that number typical.
McCormack-Batterson did note, however, that overall hiring at the company might have slowed somewhat over the past year simply because there was less attrition, because there are, overall, fewer opportunities for existing employees to move on to, and some have put off retirement due to severe hits to retirement accounts.
“Our attrition rate is much lower this year,” she explained, estimating that the number of vacancies created is perhaps half what it was in 2009. “People aren’t leaving here and going elsewhere to pursue opportunities, largely because of the uncertainty of the market, so people are staying with the company, and that means we don’t have as many open positions. Meanwhile, anyone who’s close to retirement age is looking at things and thinking that if they stay a few more years, their 401(k) will rebound.”
Looking at the longer term and this region’s prospects for closing the east-west divide, Nakosteen and Matthews said the Pioneer Valley needs to further diversify its economy with more technology-related businesses, while also spurring new investment in the area.
“There has to be investment, both public and private, in the Springfield area,” said Matthews. “And for that to happen, people have to want to live there, and that takes an attractive quality of life, and that means public investments in infrastructure and public schools that will attract new employers.”
Nakosteen agreed. “The major employers in this region will eventually stabilize and even grow again,” he said, referring to the health care facilities, colleges and universities (many struggling due to state budget cuts), and financial-services companies. “But they’re never really going to be engines of growth. The only way this region has growth prospects is if there’s something new out there that catches on.”
Matthews told BusinessWest that the location of a planned high-performance computing center in Holyoke could be that something new that provides a needed spark in terms of both visibility (the facility may well put the region on the map) and computing horsepower that would draw major corporations, government agencies, or both.
“This is just the kind of investment that could positively effect future growth there,” he said, while acknowledging that there won’t be large numbers of jobs to start. “It could become a magnet to draw other investment in the region.”
Both Matthews and Nakosteen said that a high-speed rail line between Springfield and Boston would provide the connectivity that might spur growth. Such a line would make the region a more attractive place to live (because people could now commute to jobs in the eastern part of the state) and locate businesses, again, because talented workers could more easily access jobs here. But the prospects for such infrastructure improvement is dim.
“It’s just not going to happen,” said Nakosteen, adding that the region will have to find other ways to stimulate investment and create jobs.

The State We’re In
Once again summoning that phrase “a while,” Matthews used it to delineate how long it will take for the current expansion being enjoyed by the Boston area to work its way west and have a real impact on Greater Springfield.
“And a while could be a few years,” he said, noting, as Nakosteen did, that, for the short term, the region will be looking at sluggish growth, at best, that will feel like a recession.
For the longer haul, this area has to find ways to close the gap between east and west, and, as with this recession, creating progress will likely be a long, slow grind.

George O’Brien can be reached
at [email protected]