MassBenchmarks Current and Leading Index – 4.29.15 #subcoal

UMass Donahue Institute
View as a webpage Wednesday, April 29, 2015
The Benchmarks Bulletin
Massachusetts economy weathers the storm in Q1 2015,
UMass journal reports
State growth slows significantly but economic expansion continues despite record snowfall
Massachusetts real gross domestic product grew at an estimated annual rate of 0.9 percent in the first quarter of 2015 according to the MassBenchmarks Current Economic Index, released today by MassBenchmarks, the journal of the Massachusetts economy published by the UMass Donahue Institute in collaboration with the Federal Reserve Bank of Boston. U.S. real domestic gross product grew at an annual rate of 0.2 percent according to the advance estimate of the U.S. Bureau of Economic Analysis.

Based on the latest available information, we now estimate that in the fourth quarter of 2014, the state economy expanded at a 2.9 percent annualized rate while the nation grew at a more modest 2.2 percent rate. This represents a downward revision in Massachusetts growth of 1.8 percentage points from the original fourth quarter estimate of 4.7 percent. This adjustment is due to a decline of 0.8 percentage points in estimated productivity growth and a decline of 1.0 percentage points that is largely the result of downward revisions to state job growth in November and December.

Record snowfall and weak global economic conditions dampened growth in the first quarter, but the state economy has proven to be resilient in spite of these dual headwinds. In the first quarter, Massachusetts payroll employment expanded at a 1.6 percent annual rate, down from a 2.0 percent rate in the fourth quarter of 2014. Nationally, payroll employment grew at a 2.2 percent annual rate in the first quarter. The state’s unemployment rate declined by half a percentage point in the first quarter, from 5.3 percent in December to 4.8 percent in March. During the same period, the U.S. unemployment rate fell from 5.6 percent to 5.5 percent.

"While the economic tide continued to rise in the first quarter, it is still not lifting all boats," noted Alan Clayton-Matthews, MassBenchmarks Senior Contributing Editor and Associate Professor of Economics and Public Policy at Northeastern University, who compiles and analyzes the Current and Leading Indexes. The broader U-6 measure of unemployment — which includes part-time workers who want full-time work and those who are unemployed but marginally attached to the labor force — also fell in the first quarter. "In March, Current Population Survey-based estimates put the Massachusetts U-6 rate at 10.1 percent. The corresponding U.S. rate in March was 10.9 percent," Clayton-Matthews added.

Despite the severe winter weather, Massachusetts income and spending continued to grow in the first quarter of 2015. State withholding tax receipts indicate that wage and salary income in Massachusetts expanded at a 4.8 percent annualized rate in the first quarter. This was down from a robust 10.7 percent annualized rate in the fourth quarter of 2014. The impact of February’s record snowfall can be seen in state sales tax collections, which declined sharply for both automobiles and other items subject to the regular sales tax. Nevertheless, spending on these taxable items continued to expand in the first quarter, growing at a 1.8 percent annualized rate in the first quarter, down from a 7.4 percent rate in the previous quarter.

The economic problems in Europe, the slowdown in growth in China, and the strong U.S. dollar are headwinds for both the national and state economies. In 2014, merchandise exports grew only 2.8 percent for Massachusetts and 2.0 percent for the U.S. In the first two months of 2015, merchandise exports were down 4.6 percent for Massachusetts and 12.8 percent for the U.S. as compared to the first two months of 2014. Some of the reasons for these declines may prove temporary including the severe winter weather in the Northeast and port closings on the west coast. However, export growth may remain weak all year as a result of the strong dollar and the relatively weak prospects for international growth.

The Massachusetts Leading Economic Index for March is 4.4 percent, and the three-month average for January through March is 4.6 percent. The leading index is a forecast of the growth in the current index over the next six months, expressed at an annual rate. Thus, it indicates that the economy is expected to grow at an annualized rate of 4.4 percent over the next six months (through September 2015).

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