Economists see growth for Mass., but risks loom

The Massachusetts economy should grow modestly this year and slowly bring down unemployment - provided energy prices and the European debt crisis do not spin out of control, according to a group of leading local economists.

The economists, who constitute the editorial board of the quarterly economics journal MassBenchmarks, pointed to a number of improving indicators that suggest the economic recovery will remain on track. Unemployment is down, production is up, and the national economy is on the mend.


Nationally, job growth has accelerated in recent months, the jobless rate has declined, and first-time claims for unemployment benefits are near their lowest levels in four years. Retail sales are solid, and housing has shown some signs of recovering.

“The unemployment rate has been coming down,’’ said Alan-Clayton-Matthews, an economics professor at Northeastern University and member of the editorial board. “There are some signs that consumer confidence is improving, that households are having enough new income that they have more in their pockets. [All] that can build momentum.’’

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MassBenchmarks is published by the University of Massachusetts. Members of the editorial board include economists from UMass, Northeastern University, Boston University, Harvard, MIT, Wellesley College, the Federal Reserve Bank of Boston, Federal Deposit Insurance Corp., and State Street Corp. They meet quarterly and release a summary of their discussions.

In their report, released yesterday, the economists warned that events beyond the state’s borders could derail the recovery. The European debt crisis continues to pose a serious risk. If it pushes the continent into recession, it would slow the state’s economy because 40 percent of Massachusetts’ exports land in Europe. If the debt situation balloons into a full-fledge financial crisis, it could drive the global economy into recession.

Rapidly rising gas prices, which cut into consumer spending, pose another risk, as do looming federal budget cuts. A recent report by the UMass Donahue Institute estimated that the state could lose more than 50,000 jobs over the next 10 years if some $1.2 trillion in automatic federal budget cuts go into effect starting in 2013.


Congress can stop those cuts if it reaches a deal to reduce federal deficits, but it’s unclear when or if it can.

If these risks can be avoided, the economists said, the Massachusetts economy should continue to grow modestly, but it will take time for the state to completely recover from the recent recession. Despite the lower unemployment rate, many workers are so discouraged that they have given up looking for work and are no longer counted as part of the workforce, the economists noted. Many others are working part-time jobs because they cannot find full-time work.

In many occupations, particularly blue collar jobs, there are far more applicants than openings, they added, while young workers cannot break into job market.

“The state has many sources of strength, but pockets of weakness and severe hardship remain,’’ the economists said. “We can only hope that the continuing economic recovery is strong and broad enough to encompass all segments of society.’’

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