Massachusetts economy expected to grow modestly, but risks loom, economists say
The Massachusetts economy should grow modestly this year and slowly bring down the unemployment — provided energy prices and the European debt crisis don’t spin out of control, a group of leading local economists said.
The economists, who constitute the editorial board on the quarterly economics journal MassBenchmarks, noted a number improving indicators that suggest the economic recovery will remain on track. Unemployment is down, production is up, and national economy is on the mend.
Nationally, job growth has accelerated in recently months, the jobless rate has declined, and first time claims for unemployment benefits are near their lowest levels in four years. Retail sales are solid, and housing has shown some signs of recovering.
“For both the nation and the state, there is cause for cautious optimism,’’ the economists said in a brief report released today.
MassBenchmarks is published by the University of Massachusetts. Members of the editorial board include economists from UMass, Northeastern University, Boston University, Harvard, MIT, Wellesley College, Federal Reserve Bank of Boston, Federal Deposit Insurance Corp., and State Street Corp. They meet quarterly and release a summary of their discussions.
In their report, the economists warned that events beyond the state’s borders could derail the state’s recovery. The European debt crisis continues to pose a serious risk. If it pushes the continent into recession, it would slow the state economy because 40 percent of the state’s exports land in Europe. If it balloons into a full-fledge financial crisis, it could drive the global economy into recession.
Rapidly rising gas prices, which cut into consumer spending, poses another risk, as do looming federal budget cuts. A recent report by the UMass Donahue Institute estimated that the state could lose more than 50,000 jobs over the next 10 years if some $1.2 trillion in automatic federal budget cuts go into effect starting in 2013.
Congress can stop those automatic cuts if it reaches a deal to reduce federal deficits, but it’s unclear when or if it can.
If these risks can be avoided, the economists said, the Massachusetts economy should continue to grow modestly, but it will take take time for the state to completely recover from the recent recession. Despite the lower unemployment rate, many workers are so discouraged that they have given up looking for work, and are no longer counted as working, the economists noted. Many others are working part-time jobs because they can’t find full time work.
In many occupations, particularly blue collar, there are far more applicants than job openings, they added, while young workers can’t break into job market.
“The state has many sources of strength, but pockets of weakness and severe hardship remain,’’ the economists said. “We can only hope that the a continuing economic recovery is strong and broad enough to encompass all segments of society.’’
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