By Adam Joseph Drici | GoLocalWorcester.com | February 5, 2013
The Bay State economy grew by the annual rate of 1.0 percent in the last quarter of 2012, according to a new report from MassBenchmarks, but even though the state outpaced national growth, other indicators mean a further slowdown could be on the horizon.
According to the Current Economic Index by MassBenchmarks, the journal of the Massachusetts economy published by the UMass Donahue Institute in collaboration with the Federal Reserve Bank of Boston, the state’s 1.0 percent of growth compared favorably to the national real gross domestic product, which decreased by an annual rate of 0.1 percent in the fourth quarter based on advance estimates released by theU.S. Bureau of Economic Analysis.
From the end of 2011 through the end of 2012, MassBenchmarks estimated that the Commonwealth’s economy grew 2.1 percent, compared to just 1.5 percent growth in the U.S. economy as a whole.
Positive Forecast But Reason for Caution
The journal’s Leading Economic Index, which forecasts growth in the current levels of 10 economic indicators over the next six months, points to faster growth in the coming year, with indices of 3.6 percent in December and a three-month average of 3.5 percent from October to December. While the current Leading Economic Index levels indicate an annual rate of growth of 3.6 percent between now and June, economists still had their doubts about what the near future will hold.
“There are good reasons to be concerned, however, that our current assessment of economic conditions is too sanguine,” said 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 indices.
“Wage and salary income, as estimated from state withholding tax receipts, decreased somewhat between the third and fourth quarters, although they were higher than the year before,” he said.
According to MassBenchmarks, the four indicators of total nonagricultural employment, consumer confidence, the Bloomberg stock index for Massachusetts and motor vehicle sales taxes indicated above-trend growth, while withholding taxes and initial unemployment claims indicated below-trend growth. The remaining four indicators–sales taxes, the unemployment rate, the interest rate spread between 10-year and three-month U.S. Treasury securities and construction employment–pointed to average growth.
Worcester Regional Chamber of Commerce President and CEO Richard Kennedy said he expects growth to be tempered in the new year by a good deal of continued uneasiness about the long-term implications of new tax policies and healthcare costs for businesses.
“In the state there are also significant discussions in regard to income tax increases,” he said. “Whenever you’re talking that revenue side without talking the spending cuts side, business people get very uneasy.”
Governor Deval Patrick has proposed raising the state income tax rate 1 percentage point from 5.25 percent to 6.25 percent in his Fiscal Year 2014 budget. While Patrick has said the tax increase, coupled with a decrease in the state sales tax rate to 4.5 percent, will help keep the Commonwealth competitive among other state’s in the region, Kennedy was not so sure.
“Whenever you start discussing that area of taxation, you’re never sure what the reaction will be to it,” he said, noting that individuals and businesses may become reluctant to relocate to Massachusetts if facing a higher tax burden or others currently located in the Bay State may choose to move elsewhere.
“All that speaks to the long term implications about revenue,” Kennedy said. “I don’t necessarily think it’s going to change things dramatically in terms of people doing something quickly, but I think people will look at it and say ‘Hey, this is the price of admission.’”
Worcester Faring Well
Despite the tepid economic conditions in the country as a whole and the mild growth in Massachusetts, Kennedy said Worcester is faring pretty well under the circumstances. He pointed to all of the construction currently underway in the city and the jobs the various projects are creating, as well as the role public-private investments and partnerships are playing in the city’s growth. Gateway Park, CitySquare and Quinsigamond Community College’s decision to expand into downtown are all bright spots.
“All of those things, when you add them up, are very positive for the City of Worcester,” Kennedy said. “I feel pretty positive about the prospects for Worcester as we move down the road.”
However, the Chamber president did note that just as the state’s tax structure can affect its competitiveness in New England, so too can the city’s tax structure affect its competitiveness with other communities in Central Mass.