Economists say Mass. rebound may have legs

The Massachusetts economy shook off federal budget cuts, tax increases, and weakened trading partners to fare much better than expected in 2013, offering optimistic signs that the state is shedding the aftereffects of the financial crisis, according to leading local economists.

The economists’ assessment, published Wednesday by the University of Massachusetts, noted that the outlook for economic growth looked glum a year ago as the automatic federal budget cuts known as sequestration went into effect, increased payroll taxes squeezed consumers, and Europe, the state’s biggest export market, was mired in recession.

By the end of 2013, however, consumer spending strengthened, exports rebounded, and job growth accelerated. In the last three months of the year, the Massachusetts economy expanded at an annual rate of 5.5 percent, compared with 3.2 percent for the national economy


“All we saw were these fairly significant headwinds” in initial forecasts for 2013, said Robert Nakosteen, one of the economists and a UMass Amherst professor. “But every one of those problems has become less severe.”

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The assessment of the economy is released quarterly by UMass and represents the consensus of economists who serve on the editorial board of MassBenchmarks, an economic journal published by the university and Federal Reserve Bank of Boston. The board includes economists from the Boston Fed, Federal Deposit Insurance Corp., Wellesley College, Boston University, Massachusetts Institute of Technology, and UMass.

The economists noted that 2013 appears to be the best year for job growth since the dot-com boom of more than a decade ago. Preliminary estimates show that Massachusetts employers added more than 50,000 jobs last year, the most since 2000.

The construction industry led the way in creating more jobs last year, suggesting that the recovery in the Massachusetts housing market is boosting workers in construction trades who were among the hardest hit in the recent recession. At the low point, the industry had lost 1 in 4 jobs.

The economists were optimistic that the Massachusetts economy would maintain its momentum this year. Among the positive developments: Congress last month passed a budget that moderated sequestration cuts, while European nations are emerging from their recession.


But reasons for caution remain, including high unemployment. The state jobless rate was 7 percent in January, compared with 6.6 percent nationally.

“Are we really on this good path of recovery or are things not as good as we think?” said Yolanda Kodrzycki, an economist and vice president at the Boston Federal Reserve Bank.

The economists also warned that the recent financial crisis has exacerbated income inequality. Boston and its surrounding communities, driven by the technology and innovation economy, have bounced back. But many communities beyond Route 128 are still struggling and facing unemployment rates that are almost twice as high as the Boston area.

“There are reasons to believe that the state economy is moving in the right direction, but we’ve got these caveats that it’s important for our policy makers to keep in mind about the people being left behind,” said Michael Goodman, an associate public policy professor at UMass Dartmouth. “We’re growing pretty robustly, but the rising tide is not lifting all boats.”

Deirdre Fernandes can be reached at deirdre.fernan-
. Follow her on Twitter @fernandesglobe.