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The most recent MassBenchmarks Board meeting showed a lapse in the economic recovery, as factors including the labor market, inflation, the Omicron variant, and the Ukraine conflict have fomented uncertainties. As a result, although Massachusetts continues to outperform the U.S. economy by most measures, there has been a notable slowdown in economic activity. 

In the first quarter of 2022, following six straight quarters of growth, both Massachusetts’ real gross state product and national real gross domestic product (GDP) saw reversals, declining by 1.0% and 1.4% percent at annual rates, respectively. This is a stark contrast to the last quarter of 2021 when annualized growth rates were 7.8% and 6.9%, respectively, according to the U.S. Bureau of Economic Analysis (BEA). 

In contrast to GDP, payroll employment in Massachusetts maintained its forward momentum and actually accelerated in the first quarter of 2022. Payroll employment, for example, increased at both the state and national levels, up 5.2% at an annual rate in Massachusetts in the first quarter, slightly higher than the 4.8% rate for the U.S. However, because Massachusetts experienced some of the most severe job losses and dramatic increases in unemployment rates in the nation during the early stages of the pandemic in 2020, employment remains 2.4% below peak (a deficit of 89,000 jobs). 

In contrast, the U.S. is now about 1.0% below its February 2020 jobs peak, according to the U.S. Bureau of Labor Statistics. The divergence of GDP and employment growth trends during the first quarter indicates a large decline in productivity — more people are working but output is decreasing. The productivity decline could be driven by the fact that low-wage sectors (with below-average productivity) are currently leading job growth, and/or by other factors such as supply constraints that are limiting production, and labor hoarding. The latter possibility is consistent with the historically low level of layoffs. 

 

In terms of GDP growth, Massachusetts and other states have followed national trends more closely than in previous business cycles, according to the board. This is likely due to both regional economies becoming more diversified over time as industries are less localized as well as the pandemic having a large economic impact on all states. For example, COVID-related stimulus spending is promoting greater convergence among the states in general — allowing most to ride the same wave towards fiscal recovery. As such, the national economic situation, including its endemic risks, have a great bearing on the Massachusetts economy. 

Opinion

Opinion

By Chris Geehern

The unprecedented upheaval of 2020 will change the way we live and work for years to come, says John Regan, president and CEO of Associated Industries of Massachusetts (AIM).

Regan punctuated his annual State of Massachusetts Business Address with a call for state policymakers to support the recovery of an economy that remains fragile in the wake of the ongoing public-health crisis.

“Hundreds of thousands of our friends and neighbors in Massachusetts remain out of work because of the pandemic. Many have left the workforce altogether,” Regan said during a virtual speech to the AIM Executive Forum. “Addressing the COVID crisis by shutting down the economy again and impeding the ability of people to support their families is not a solution. Neither is imposing Draconian tax increases to address the state’s fiscal issues on the backs of businesspeople trying to keep people employed amid permanent, structural changes to the way we live and work.”

Regan noted that the unprecedented convergence of the COVID-19 pandemic, a cataclysmic recession, and a reckoning on racial equity combined to alter the economy, the workplace, healthcare, manufacturing supply chains, and transportation. It affected schools, government, family life, shopping patterns, the housing market, race relations, and social interactions.

The upheaval has accelerated ongoing seismic shifts in the nature of the workplace, Regan noted. “What the e-commerce revolution did for physical stores, the telepresence revolution could do for office-adjacent employment. Some of the repercussions are positive — less traffic in major urban areas, more flexibility for workers, and expanded opportunities for employers to hire talented people virtually anywhere.”

The bad news? “Cities like Boston that have thrived on proximity-driven innovation and community intellectual energy could see that energy dissipate as companies accelerate the move toward virtual operations,” he said. “Given the OK to go remote, workers may use their freedom to move to cheaper metros where they can afford more space, inside and outside.”

“What the e-commerce revolution did for physical stores, the telepresence revolution could do for office-adjacent employment. Some of the repercussions are positive — less traffic in major urban areas, more flexibility for workers, and expanded opportunities for employers to hire talented people virtually anywhere.”

Four distinguished economic experts offered commentary about which changes generated by the pandemic might be lasting. Pamela Everhart of Fidelity Investments, Edward Glaeser of Harvard University, Dr. Lee Schwamm of Mass General Brigham, and Nada Sanders of Northeastern University said the nature of any long-term structural economic shifts will become evident only after governments moderate the spread of the pandemic.

Regan said AIM and its 3,300 members look forward to working with state and federal leaders to craft a long-term economic recovery for the Commonwealth.

“Massachusetts businesses have responded responsibly to the pandemic by prioritizing their employees and customers, investing in workplace-safety protocols, adapting operations to ensure compliance with business-specific requirements, and finding creative ways to offer services and goods while remaining operational,” Regan said. “Businesses prioritized these things because this is what our businesses do. They invest, they change, and they adapt. These are the qualities that have made Massachusetts an economic leader for decades.” v

 

Chris Geehern is executive vice president of Associated Industries of Massachusetts.

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