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Mass. economy follows pace of US

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EPA

The Massachusetts economy downshifted significantly at the end of last year, felled by broader weaknesses in the US and global economy, the University of Massachusetts reported Friday.

After expanding by a 5.7 percent annual rate in the second quarter of 2015 and 2.4 percent in the third, the Massachusetts economy grew at just 1.3 percent rate in the last three months of the year. Even the beginning of 2015, marked by the record snowfall and harsh winter, proved a better quarter than the end of the year, according to the report, published in the UMass economic journal, MassBenchmarks.

Alan Clayton-Matthews, a Northeastern University economist who prepared the estimates, said he expects the slowdown to extend into this year, forecasting the economy will expand at a 2.4 percent rate in the first quarter of this year, compared to 3.1 percent for the same period last year.

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"It will be good growth, but lower growth," Clayton-Matthews said.

The Massachusetts economy is feeling the impact of global slowdown affecting both emerging economies and developed nations. Oil prices have plunged in recent weeks over concerns about weaker demand. China, a key engine of global growth in recent years, announced earlier this month that its economy expanded at the weakest pace in 25 years.

On Friday, the Bank of Japan, attempting to jump-start Japan's struggling economy, took the rare step of dropping its benchmark interest rate into negative territory. That means that commercial banks in the world's third-largest economy will have to pay for deposits held at the central bank, an enticement for them to lend the money for business expansion and consumer spending.

Also on Friday, the Commerce Department reported that the US economy grew at a tepid 0.7 percent rate for the fourth quarter, down from 2 percent in the previous quarter. Consumer spending weakened, companies cut back on investment, exports declined, and state and local governments curbed spending in the last three months of 2015, the Commerce Department said.

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The strong US dollar has raised the price of American-made goods to overseas consumers, hurting exports, said Nariman Behravesh, chief economist at IHS Inc., a forecasting firm in Lexington. And while the plunge in oil prices means lower gasoline prices, it isn't providing a significant lift to consumer spending, which increased at a 2.2 percent annual rate in last quarter, compared to 3 percent in the third quarter.

"The gas bump is not helping on the big ticket items," Behravesh said. "It's helping in dribs and drabs."

Behravesh and other economists said the slowdown means the Federal Reserve is unlikely to raise interest rates again until June. The Fed raised its benchmark interest rate for the first time in a decade in December, lifting it by a quarter point to between 0.25 and 0.5 percent.

In Massachusetts, the turmoil in financial markets is having an effect, said Clayton-Matthews. Wages in the fourth quarter declined at an 6.9 percent annual rate from the previous three months, which Clayton-Matthews blamed in part on lower-than-usual bonus payments in the city's large financial services sector.

"If there's a bad year on Wall Street, it effects wage and salary income in the state," he said.

It wasn't all bad news. Job growth in Massachusetts and the nation have been strong. Massachusetts employers created 2.1 percent more jobs in 2015, while in the US jobs grew by 1.9 percent. The unemployment, while ticking up slightly to 4.7 percent in December, is still below the US rate of 5 percent.

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Behravesh said some of the headwinds unsettling the US and state economy should ease in the coming months. Oil prices should bottom out and stabilize, and companies should work through inventories and ramp up production again, he said.


Deirdre Fernandes can be reached at deirdre.fernandes@globe.com.