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Mass. economy sees surprisingly strong growth

After a period of lackluster economic growth, the ­Massachusetts economy sprang to life in the first three months of this year as hiring increased, incomes rose, and consumer spending rebounded, according to a new report by the University of Massachusetts and the Federal Reserve Bank of Boston.

The state’s economy grew at a solid annual rate of 3.9 percent between January and March, accelerating from 2.4 percent at the end of last year and significantly outpacing national economic growth. The US economy grew at a ­disappointing 2.5 percent ­annual rate in the first three months of the year, after barely growing at all at the end of 2012, the US Commerce Department reported Friday.

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The state has recovered from the last recession faster than the nation as a whole, regaining as of January all the jobs lost in the downturn even as US employment remains millions of jobs below the prerecession peak. That has helped boost incomes here, which have been further supported by the strong stock market and rising home values, leading to stronger consumer spending.

“What’s surprising is how quick the growth was in the beginning of the year,” said Alan Clayton-Matthews, the Northeastern University economist who compiled and analyzed ­data in the UMass report. “We’re in the fourth year of the recovery now, and at some point that pent-up demand has to make itself felt in consumer spending. That’s what’s beginning to take place.”

Wages and incomes in Massachusetts grew at a “stunning” 19.9 percent annual rate in the first quarter, Clayton-Matthews said, likely due to sizable bonuses for workers in the state’s financial companies and professional services sector, which includes law, scientific research, and technical firms.

Consumers, meanwhile, ­appeared to put aside caution and open their wallets. Spending on discretionary purchases, including TVs, furniture, and appliances, as well as motor ­vehicles, grew robustly at an annual rate of 11.6 percent, based on an analysis of state sales taxes.

At Boch Enterprises, one of the region’s biggest auto dealers, sales are on the rise, said owner Ernie Boch Jr. Many customers, after holding back for the past few years, simply need a new car and can no longer put off a purchase, he said. Others have been lured into showrooms by new models and historically low interest rates.

“There’s lots of signs that people are out spending,” Boch said.

Retailers are also seeing those signs. At TJX Cos., the Framingham retailer that operates T.J. Maxx, Marshalls, and HomeGoods, sales climbed 12 percent in 2012 from the previous year. During the five weeks ending April 6, sales rose 5 percent from the same period a year earlier.

The Massachusetts economy seems to have turned a corner after Washington legislators resolved longstanding tax and policy questions at the end of last year, local economists said. Bruising debates over the national debt followed by an election-year stalemate over reducing the nation’s deficit had left many employers wary of hiring or expanding in the past year, hindering an already slow recovery.

But with the election decided and some major budget battles resolved, the economy has shown signs of improvement. In January, after Congress avoided the so-called fiscal cliff of steep tax increases and deep budget cuts, Massachusetts employers added more than 16,000 jobs, the strongest pace of hiring in years.

Risks to the economy remain, the UMass report warned. Massachusetts is particularly vulnerable to across-the-board federal spending cuts known as sequestration because the state receives billions annually in federal defense and research spending.

The spending cuts, which took effect last month, have already led to slower hiring in many of the state’s key industries, including health care, higher education, and research and development.

Weak demand for Massachusetts goods in Europe, the state’s biggest foreign market, could also slow growth. State exports to Europe, which is mired in an economic crisis, fell about 30 percent in the first two months of this year, compared with the same period a year ago, according to Wisertrade.org, which tracks international trade.

The UMass report, published in the economic journal MassBenchmarks, projected the state’s economy would continue to grow in coming months, albeit not as quickly.

Michael D. Goodman, professor of public policy at UMass Dartmouth and one of the report’s authors, said it highlights the state’s overall progress since the end of the last recession, although the gains have been uneven.

The number of people unemployed for six months or longer in Massachusetts remains troublingly high, he said. Many are older workers, displaced from jobs in still struggling sectors of the state’s economy, such as manufacturing.

And the western part of the state, as well as cities like Lawrence and New Bedford, continue to wrestle with persistently high unemployment.

“The state is doing well,” Goodman said. “But even though we have had strong performance, there are still large regions of the state that aren’t experiencing the benefit.”

Megan Woolhouse can be reached at mwoolhouse@ globe.com.
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