State Economy Expands Robustly in Q2, UMass Journal Reports
AMHERST — Massachusetts real gross domestic product grew at an estimated annual rate of 5.4% in the second quarter of 2015 according to the MassBenchmarks Current Economic Index, released today by MassBenchmarks, the journal of the Massachusetts economy published by the UMass Donahue Institute in collaboration with the Federal Reserve Bank of Boston.
U.S. real gross domestic product grew at an annual rate of 2.3%, according to the advance estimate of the U.S. Bureau of Economic Analysis. Based on the latest available information, it’s estimated that, in the first quarter of 2015, the state economy expanded at a 2.1% annualized rate while the nation grew at a 0.6% annualized rate.
In the second quarter, the state’s economy rebounded strongly from the weather-induced slowdown of the first quarter, with robust growth in employment and spending. Massachusetts payroll employment expanded at a 3.1% annual rate in the second quarter, nearly twice as fast as in the first quarter, when employment grew at a 1.7% annualized rate. Nationally, payroll employment grew at a 1.7% annual rate in the second quarter, down from 2.2% in the first quarter. The state’s unemployment rate fell from 4.8% in March to 4.6% in June, while the U.S. unemployment rate fell from 5.5% to 5.3% during the same period. The state’s unemployment rate has reached pre-recession levels.
“The rising tide appears to finally be lifting the boats of the long-term unemployed, even though conditions for these workers remain difficult,” noted Dr. 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 broader U-6 measure of unemployment, which includes part-time workers who want full-time work and those who are unemployed but marginally attached to the labor force, declined significantly in the second quarter. “For the 12-month period ending in June, the Massachusetts U-6 rate fell to 10.4%, a 0.6-percentage-point drop from the 12-month period ending in March,” he noted. “In June, Current Population Survey-based estimates put the Massachusetts U-6 rate at 9.7%. The corresponding U.S. rate in June was 10.5%.”
Massachusetts income and spending growth was also very strong in the second quarter. Based on withholding tax revenues, state wage and salary income in the second quarter grew at a 4.8% annual rate, following growth of 4.8% in the first quarter. Consumer and business spending on goods subject to the state’s regular sales and motor-vehicle sales tax increased dramatically in the aftermath of the snowiest winter on record. In the second quarter, spending grew at a whopping 19.3% annual rate, following 1.8% growth in the first quarter. The ability and willingness of households and businesses to spend reflects the underlying strength of the state economy and bodes well for future growth, the report asserts.
The MassBenchmarks Leading Economic Index for June is 4.8%, and the three-month average for April through June is 5.0%. The leading index is a forecast of the growth in the current index over the next six months, expressed as an annual rate. Thus, it indicates that the economy is expected to grow at an annualized rate of 4.8% over the next six months (through December 2015), suggesting that the state’s solid economic performance will continue through the rest of the year. It is projecting real state gross-product growth of 5.1% in the third quarter and 4.8% in the fourth quarter.
However, while the state economy appears to be in the midst of a solid economic expansion that positions the Commonwealth for solid future growth, risks to the outlook remain. Weak international economic conditions and geopolitical uncertainty continue to weigh heavily on the economic outlook for Massachusetts and the nation. The strong dollar, combined with sluggish growth in Europe and slowing growth in China, has had a significant impact on state and national exports. For the first five months of this year, Massachusetts merchandise exports are down 14.0% as compared to the first five months of 2014, while U.S. merchandise exports are down 5.2% during the same time period.