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The Boston Globe

Business

Study predicts Massachusetts economy will lose momentum

The US economy lost momentum over the past three months and Massachusetts is expected to follow as consumer spending slows and the economic crisis in Europe takes its toll.

Although the Massachusetts economy grew at more than double the national rate, according to report released Friday by the University of Massachusetts, a slowdown in the state is imminent, in large part because of the anemic national recovery, analysts said. The state’s economy expanded at a 4 percent annual rate from April to June, UMass said, but the national economy grew at just 1.5 percent, the US Commerce Department reported Friday.

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Sung Won Sohn, an economics professor at California State University, said the US economy is in “stall speed” and at greater risk of slipping into recession.

“Consumers have closed their wallets because they’re concerned about poor job prospects and the European financial crisis, which will probably get worse,” Sohn said. “There are more and more people without jobs, and small to medium-sized businesses know how difficult things are. Sales are really soft.”

Economists said the weak vital signs of the domestic economy make the nation more vulnerable to unresolved problems in Europe, including particular concerns about deep-seated recessions in Greece, Spain, and other nations that share the euro currency. In Spain, unemployment in the second quarter rose to a record 24.6 percent, according to national unemployment statistics published Friday.

But stock markets around the world rallied Friday after Mario Draghi, the president of the European Central Bank, promised strong actions to preserve the euro and bring the long-running crisis under control. In New York, the Dow Jones industrial average gained 188 points to close above 13,000 for the first time since May.

Uncertainty about Europe has weighed on both the US and Massachusetts economies this year, echoing an increasingly familiar pattern in recent years in which economic improvements early in the year slip away as the year progresses. The US economy slowed from a 2 percent annual growth rate in the first quarter, and Massachusetts from 4.5 percent.

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Job growth has also slowed sharply. In June, the nation added just 80,000 jobs, while Massachusetts experienced its first monthly job losses since November. In the past three months, the state’s economy generated just over 4,000 jobs, compared with nearly 29,000 in the first three months of the year, according to state employment statistics, state officials said.

Massachusetts depends heavily on European commerce. About 40 percent of the state’s exports are sold in Europe, about double what the nation as a whole exports there. A slowing of consumer demand in another of the state’s biggest export markets, China, could also slow the Massachusetts economy, UMass analysts said.

Alan Clayton-Matthews, a Northeastern University professor who did the economic analysis for the report, noted that Massachusetts merchandise exports declined for the first five months of the year in Massachusetts.

“We’re expecting things to get worse,” Clayton-Matthews said. “It looks like we’ve been lucky so far.”

Clayton-Matthews said the state has been buoyed by its technology sector. In recent months, the state has showed unexpected strength in wages, salary, and income, in part because of increased employment in the high tech sector, which tends to pay higher salaries.

Among Massachusetts’ key high tech products are semiconductors and semiconductor equipment. Demand for these products slowed last year after the earthquake in Japan and flooding in Thailand, where many companies buy these Massachusetts products for use in manufacturing electronics. Those sales have steadied this year, though they are not growing at an “explosive” clip, Clayton-Matthews said.

But Michael Goodman, a professor and economic analyst at the University of Massachusetts Dartmouth cautioned, “With all the stuff going on in the world, the risk factors on the national horizon, one has to wonder how long this can last.”

The national economy is unlikely to provide much help in the near future. Nigel Gault, chief US economist at the Lexington forecasting firm IHS Global Insight, said the economy is weak enough that “there is no reason to expect it to get better anytime soon.” Consumer spending, which accounts for more than two-thirds of US economic activity, increased at a 1.5 percent annual rate in the second quarter, the weakest growth in a year, the Commerce Department reported.

In addition to the European problems, uncertainty about whether Congress will resolve questions over taxes and spending, and avoid the so-called fiscal cliff of sharp tax hikes and deep budget cuts is also weighing on consumers and the broader economy.

“We have periods of optimism, then we slow down again because we still have these drags [on the economy],” Gault said. “The eurozone could potentially take us into recession, and the fiscal cliff certainly could take us into recession.”

Increasingly, Gault and other economists expect the Federal Reserve to take additional steps to stimulate the economy by pushing mortgage and other long-term interest rates lower. The Fed has held its key short-term interest rate near zero since the end of 2008.

Fed policy makers meet next week to consider what, if any, actions to take.

Erin Ailworth of the Globe staff contributed to this report. Megan Woolhouse can be reached at mwoolhouse@globe.com.

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