Nearly five years after the end of the recession, the state and national economies appear poised for solid growth driven by strong employment growth, rising incomes, and increased consumer spending, economists said.
The Massachusetts economy grew at warp speed in the last three months of the years, expanding at an annual rate of 5.5 percent, according to a new report released Thursday by the University of Massachusetts. The national economy grew at a 3.2 percent rate in fourth quarter, the US Commerce Department said Thursday.
“The good news is the economy does seem to be on a bit of a roll,” said Nariman Behravesh, chief economist for IHS Global Insight, a Lexington forecasting firm. “We see it accelerating from fair to good.”
The solid expansion in the fourth quarter followed strong performances in the previous three months, when the state and national economies grew, respectively, at 5.5 percent and 4.1 percent annual rate. Earlier this week, in deciding to further cut trim its stimulus measures, the Federal Reserve noted that economic activity has picked up in recent months, with household spending and business investment advancing more quickly than expected,
Fed officials said federal budget cuts are still restraining growth, but the impact of those cuts is diminishing. While the unemployment rate has declined in recent months, they added, its remains elevated.
In Massachusetts, unemployment also remains high — 7 percent in December, compared with 6.7 percent nationally. But Alan-Clayton Matthews, a Northeastern University economics professor and one of authors of the UMass report, said he expects those rates to come down.
He said the economy appears headed into a “classical recovery phase,” in which increased consumer spending encourages businesses to expand and hire, which boosts consumer confidence, which leads to more spending. In Massachusetts, sales taxes, an indicator of consumer spending, jumped at a 9.2 percent annual rate in the last three months of 2013, compared to 1.5 percent in the same period a year ago.
Nationally, consumer spending rose at a 3.3 percent annual rate, the biggest increase in three years, according to the Commerce Department.
“It looks to me like we’re at a point nationally and in the region where we can expect quarter after quarter of good, solid growth rates,” he said. “Maybe now we’re in a virtuous cycle.”
US exports also are on the rise as economies in key export markets, including Europe, Japan, and China, economists said. A weak dollar, which makes US goods cheaper in foreign markets, has also helped.
Mark Zandi, chief economist at Moody’s Analytics, a forecasting firm in West Chester, Pa., said by the end of this year, the national economy will have matured from recovery to “full blown expansion.” The economy is adding jobs, wages are keeping pace with inflation, and people have lower debt burdens than at the start of the recession.
Businesses, however, have remained cautious about investing and hiring in recent years, Zandi said, but that might be changing. He noted Moody’s latest survey of business confidence, which has reached the highest levels in a decade.
“Confidence tends to jump once the economy gets back to its prerecession level” of job creation, he said. “At current rates of growth, we’re six months away.”
The economy has adjusted to some of the challenges that slowed it last year, such as the increase in payroll taxes and the automatic budget cuts known as sequestration, said Behravesh
“That drag is going to be much, much smaller this year,” he said. “What’s happening is with less drag from fiscal policy and government, the economy is beginning to shine.”
The state economy, meanwhile, is benefiting from the improving national and international economies, Clayton-Matthews said. But he and other authors of the UMass report noted that the “rising tide is not lifting all boats.” Long-term unemployment remains near record levels, and jobless rates among young workers and those without college degrees remain high.Megan Woolhouse can be reached at firstname.lastname@example.org.