Mass. economy outpacing US, but challenges still exist

Region still faces challenges such as high energy costs

In the beginning of 2015, wages grew in the state, helping to support stronger consumer spending, the report said.
In the beginning of 2015, wages grew in the state, helping to support stronger consumer spending, the report said.(John Tlumacki/Globe Staff/ file 2014)

Brutal winter? What brutal winter?

The Massachusetts economy has brushed aside the record snowfall that hobbled businesses earlier this year to post impressive gains in employment, wages, and consumer spending, outpacing the nation as a whole.

And the state's economic growth is expected to accelerate, according to a report by the New England Economic Partnership, a nonprofit group of regional economic researchers.

Massachusetts, however, still faces a number of critical challenges — including high youth unemployment and rising costs for energy and housing — but the general economic outlook is bright, the report says.

"The Massachusetts economy is humming, performing at or better than expected," the report says. "The harsh weather in January and February was no more than a speed bump in the state's economic growth, which is bouncing back robustly this quarter."


Driving the growth are the state's technology, biotechnology, and health care sectors, which have expanded solidly in recent years, said Alan Clayton-Matthews, a Northeastern University economist and author of the report.

In addition, companies in another key sector, financial services, are hiring again, after several difficult years following the last recession and 2008 financial crisis.

Statistically, the state's economy performed better this past winter than it did the previous winter, growing at a nearly 1 percent annual rate in the first three months of the year, compared to shrinking 2.1 percent in 2014. That first-quarter growth easily outpaced the US economy, which shrank nearly 1 percent during 2015's first three months, weighed down by weak consumer spending, a stronger dollar that hurt exports, and labor disputes at West Coast ports that disrupted trade. Severe winter weather in many parts of the country also hampered growth.

The state's winter performance comes as somewhat of a surprise, the report said, considering that a series of snowstorms in January and February brought the region to a standstill, shutting down roads, transit systems, and many businesses.


"All of that was temporary," said Clayton-Matthews.

The report forecasts a strong rebound, with the economy projected to grow by a 6 percent annual rate in the second quarter and 5.5 percent in the third quarter, based on the analysis of jobs, state tax collections, and other economic data.

In the 12 months ended in April, the state added 66,000 jobs, while the unemployment rate fell more than a percentage point, to 4.7 percent, well below the national average of 5.4 percent.

Wage and salary growth has also been impressive, boosted by the concentration of high-paying industries such as technology, biotech, and health care, and by a tightening labor market.

In the last half of 2014, wages and salaries in Massachusetts grew at about a 10 percent annual rate, double the national rate, according to the report. In the beginning of 2015, wages and salaries grew at about a 5 percent annual rate, in Massachusetts and nationally.

That wage growth has helped support stronger consumer spending here, according to the report. While consumer spending was essentially flat nationally in the first three months of the year, it grew at a nearly 2 percent rate in Massachusetts.

John Murtha, general manager at the 551-room Omni Parker House in Boston, said business has picked up in his industry since the recession. But it's now getting more difficult to fill positions as the jobless rate falls.


The hotel has six to eight positions it's trying to fill, from room attendants to lobby supervisors.

"We would have filled those positions by now two years ago," he said. "The labor market is getting a little tighter."

Despite the improvement in the economy, the state still faces challenges.

Of particular concern is the high unemployment rate for workers 25 and younger, which is still above prerecession levels, according to labor statistics.

The average unemployment rate in Massachusetts for this age group was 11.7 percent for the 12-month period ended in April, compared to 9.2 percent in 2007, before the last recession began at the end of 2007.

Also, the number of people in Massachusetts who are working part-time jobs because they can't find full-time positions is 2.3 times higher than it was in 2007. In April, 150,400 part-time workers wanted full-time jobs, compared to 66,500 in April 2007.

"The overall job statistics can mask what's really happening," said Elliot Winer, an economist at Northeast Economic Analysis Group in Sudbury. "There's still some questions about the caliber of the type of jobs being created."

The region's high energy prices — particularly for electricity, now running 40 percent higher than the national average — are acting as a competitive drag on the economy, the report warned.

It found that Massachusetts residents and businesses pay more for all forms of energy, including gasoline and natural gas, than their counterparts nationally.

Another challenge: the state's high housing costs, particularly in the Boston area.


Jeffrey Gates, co-owner of Acquitaine Group, owner of eight restaurants in the area, said the high housing costs are making it difficult to attract and retain employees.

"It's very concerning," Gates said of housing prices and the tight labor market.

"I'm very troubled by it. We need all these people closer to where they work — not just for the labor force but for the very fabric of our society. Housing isn't affordable for many people, and I believe that's harming the entire economy."

The New England Economic Partnership report forecasts that the regional economy will grow in both the second and third quarters of this year.
The New England Economic Partnership report forecasts that the regional economy will grow in both the second and third quarters of this year.(Jonathan Wiggs/Globe Staff/File 2012)

Jay Fitzgerald can be reached at