Brighter outlook for Mass. businesses in 2013
US and global economies are predicted to rebound if the fiscal crisis can be resolved swiftly, and Massachusetts is well positioned to build on its strengths
By Globe Staff | The Boston Globe | December 30, 2012
The Massachusetts economy, despite slowing in recent months, should improve in 2013, adding jobs at a moderate pace and gaining speed towards the end of the year, according to economic forecasts.
But the forecasts hinge on an important factor: the fiscal cliff. If drastic federal tax increases and spending cuts go into effect next month as scheduled, they could tip the state and national economies into a double-dip recession, according to Northeastern University economics professor Alan Clayton-Matthews. Massachusetts stands to lose more than 50,000 jobs in the next few years unless a political compromise is reached soon.
Clayton-Matthews said he expects Congress and the White House will reach a compromise before the worst can happen. And once they do, he said, it should provide a lift for Massachusetts, freeing employers from uncertainty about taxes and the government’s next move.
“It looks like by the end of the year the economy will be accelerating robustly,” Clayton-Matthews said. “This weak period now, with all this uncertainty from the fiscal cliff and the slowdown in Europe, will improve throughout the year.”
Massachusetts recovered from the recession faster than the nation as a whole largely due to its high-tech industry and strong global demand for technology products. But the state economy slowed in recent months as national and global economies sputtered, weakening demand for Massachusetts products in key export markets such as Europe and China.
Both US and global economies, however, are poised to rebound, according to IHS Global Insight, a Lexington forecasting firm. Economists there say the dynamics for a gradually accelerating US recovery are already in place, assuming tax and spending issues get resolved. Global growth should also accelerate gradually next year.
“Over the past year, the risks facing the global economy were skewed to the downside,” said Nariman Behravesh, IHS Global Insight’s chief economist. “In the coming year, not only will some of the big-four threats — another US recession, a Eurozone meltdown, a Chinese hard landing, and a war in the Persian Gulf — become less menacing.”
In Massachusetts, employment is expected to grow by just under 1 percent, or about 30,000 jobs, in 2013, compared to 1.2 percent this year, Clayton-Matthews said. By 2014 and 2015, employment growth will increase by 2 percent, or more than 60,000 jobs, each year.
So far the state has regained 87 percent of the 143,000 jobs lost in the recession. By the end of 2013, the state should regain all the jobs it lost in the downturn that began here in 2008, according to Clayton-Matthews’s forecast.
The unemployment rate, 6.6 percent in November, is expected to decline slightly next year. In 2013, jobs in Massachusetts will grow fastest in the construction, professional and business services, information services, and the leisure and hospitality sectors, according to forecasts. - MEGAN WOOLHOUSE
Retail: a more level playing field
Massachusetts retailers are looking forward to a more even field in 2013 by getting online merchants to collect taxes on all purchases.
The effort to adopt a national Internet sales tax law appears to be gaining momentum as the world’s largest online store, Amazon.com Inc., has expressed support for it while major retailers, such as Walmart Stores Inc., push legislation to eliminate what they see as an unfair advantage for online-only competitors.
Online retailers have been protected by a 1992 Supreme Court ruling that requires them to collect taxes only in states where they have a store or other outpost. This loophole cost Massachusetts $387 million in taxes in 2011 and nearly 2,000 jobs, according to a recent study by the Massachusetts Main Street Fairness Coalition, a group of retailers, elected officials, and labor unions.
The coalition and the Patrick administration plan to lobby the federal government to adopt a national law that would require all online merchants to collect and remit sales taxes.
But even if these efforts fail, the Patrick administration recently succeeded in getting Amazon to collect the state’s 6.25 percent sales tax from Massachusetts customers beginning in November. - JENN ABELSON
Commercial real estate: livelier times
The commercial real estate market will get a lot livelier in 2013 with office rents and property values on the rise.
That combination should entice owners of large office properties to sell and developers to seek more opportunities to launch new projects. Speculative building, or erecting projects before tenants commit, appears unlikely as lenders stay conservative following the economic downturn. But neighborhoods like East Cambridge and Boston’s Seaport District will continue to see construction for growing technology and life sciences firms.
In the multifamily residential market, apartments will remain the favored product. New apartment towers are already rising across Boston, with the first wave to be completed in 2013.
Several large condominium projects are also likely to get underway, including the long-stalled Filene’s redevelopment in downtown Boston. The condominium market should heat up around the city, as more buyers hunt for a dwindling supply of units.
It is another matter whether any of these new homes will be affordable for middle-income families or younger renters. The median sale price for a condo in downtown Boston rose to a near record of $486,000 at the end of 2012, according to the real estate information service LINK. Rents are also among the highest in the nation.
Boston officials hope that the completion of the city’s first project of so-called micro-apartments — 350- to 400-square-foot units — will begin to address this issue. The apartments are smaller by design to make them more affordable, but it remains to be seen whether prices will be manageable or the units desirable. - CASEY ROSS
Travel and Tourism: attracting more international visitors
As the middle class expands in emerging nations such as China and India, the market for international visitors has increased dramatically. The Massachusetts tourism industry is ready to grab its share.
With an additional $4.5 million to focus on attracting international visitors, the Massachusetts Office of Travel and Tourism is collaborating with Brand USA, a federal agency that promotes the United States as a destination, and airing the state’s first TV ad in another country.
The Greater Boston Convention & Visitors Bureau is teaming with Brand USA to promote Boston at trade shows around the world in the hopes of doubling the number of international visitors to 2.8 million by 2015.
The Massachusetts Port Authority is focused on adding more nonstop flights into Logan International Airport from Asia, the Middle East, and Latin America. The first nonstop to Japan started in 2012; a Central American route will probably begin operating in the new year.
Hotels, shopping centers, and tour operators are also paying more attention to the international market. The Charles Hotel just became the first independent US hotel to launch a Chinese website hosted in Hong Kong. - KATIE JOHNSTON
Housing: moderate gains in Boston market
The Boston-area housing market will continue to improve in 2013 with sales increasing and home values stabilizing — especially in higher priced neighborhoods.
As a sign of increasing confidence, more sellers will put properties on the market while developers build new condominiums, apartments, and single-family homes.
But even with this additional supply, the overall inventory will remain low, holding back sales. Few expect a boom in prices, especially in areas that are farther away from Boston and its amenities.
Barry Bluestone, director of the Dukakis Center for Urban and Regional Policy at the Northeastern University School of Public Policy and Urban Affairs, said the condo market in and around Boston showed some strength this year as prices climbed.
He said he expected condo prices to rise modestly in 2013. Demand for single-family homes should also increase modestly next year, Bluestone said.
Home values in the Boston area have held up better than in other parts of the country, which were hit harder by the recent housing bust.
Values here are down about 15 percent since the 2005 market peak, about half the decline of the country as a whole, according to the S&P/Case-Shiller Home Price Indices, widely used gauge of the housing market.
Karl E. Case, a creator of the national housing indices and a retired Wellesley College economics professor, said the housing market faces several challenges, including changing demographics. The trend is upward, he said, but “it’s not likely to be a rocket ship.’’ - JENIFER B. MCKIM
Health care: change, consolidation, cost controls
For hospitals and health insurers, 2013 looks to be a year of change and consolidation. Industry pressures combined with new state and federal laws will push health care providers and payers toward more coordinated care with an eye towards reining in costs.
Hospitals and doctors, who are banding together in integrated networks known as accountable care organizations, are bracing for deeper cuts in Medicaid and Medicare, the government health insurance programs for lower-income and older Americans, even if US lawmakers manage to avoid the fiscal cliff and agree on spending reductions.
At the same time, insurers will intensify efforts to shift health care providers to so-called global payment contracts where hospitals and physicians are given a fixed budget to cover a patient’s care and are rewarded for providing quality care under budget.
That is replacing fee-for-service contracts that reimburse providers for visits, tests, and procedures.
Hospital consolidation will probably accelerate, as Partners HealthCare presses forward with a plan to acquire South Shore Hospital, Beth Israel Deaconess Medical Center negotiates affiliations with Cambridge Health Alliance and Signature Healthcare of Brockton, and Tufts Medical Center works with Vanguard Health Systems to buy independent hospitals.
Steward Health Care System, meanwhile, will renew its efforts to expand out of state. - ROBERT WEISMAN
Financial services: Plenty of uncertainty still ahead
It’s been a strong year for stocks, and with the election over and the economy slowly improving, there could be more good news for investors ahead.
But markets hate uncertainty, and there will still be plenty of it in 2013. Even if Congress and President Obama reach some agreement to avoid the fiscal cliff, there will more tax and spending issues to deal with in the new year. Early in 2013, Washington must contend with another big, divisive issue: whether to raise the nation’s debt ceiling and allow more borrowing. If that can’t be resolved quickly, it could put rating of the United States at risk and rattle global markets.
Banks and insurers are hoping the economy grows at a faster pace in 2013. The sluggish recovery has reduced demand for loans, insurance, and other financial products, while ultralow interest rates have reduced the money they earn on Treasury bonds and other safe investments. These factors have weighed on profits, prompting companies to cut jobs and streamlinetheir operations. More job cut announcements are likely.
The industry is also waiting for details of the Dodd-Frank financial overhaul to be determined and applied by regulators. Critics complain that the rules are being watered down, and worry that retiring US Representative Barney Frank, the Democrat from Newton, won’t be there to champion the reforms.
That may seem good for industry players, who complain that new regulations will be costly. On the other hand, a failure to achieve more transparency and better oversight could lead to new problems in the financial system. Everyone agrees that that is the last thing the sector, or the economy, needs. - BETH HEALY AND TODD WALLACK
Life sciences: Focus is on new drugs and devices
Fresh off their success in hosting well-attended national industry conventions in Boston, Massachusetts biotechnology and medical technology companies will turn their attention next year to bringing new drugs and devices to market.
After years of research and clinical trials, several biotechs are making the transition to full-scale commercial enterprises as they win Food and Drug Administration approval for new therapies. Vertex Pharmaceuticals Inc., Ironwood Pharmaceuticals Inc., and Ariad Pharmaceuticals Inc., will ramp up sales in 2013 after getting the green light from the FDA in 2012. Other drug makers, notably AVEO Pharmaceuticals Inc. of Cambridge, are hoping to join them next year.
At the same time, a growing number of global pharmaceutical companies are setting up operations in the Boston area to strike drug research partnerships with the region’s cluster of venture-backed biotechnology firms and university and hospital researchers.
Medical device companies, meanwhile, are looking forward to a faster review process from FDA regulators so they can get their products to market sooner. They will continue to fight a new federal tax to help pay for President Obama’s health care overhaul.
With new leadership, one of the state’s best known device makers, Boston Scientific, will focus on developing new products to help the company regain its competitive advantage and rebound from some disastrous decisions in recent years. - ROBERT WEISMAN
Clean energy: Financial, market challenges ahead
The last year was a tough one for the alternative energy sector, and 2013 could be just as challenging for many segments of this still-emerging industry.
High profile bankruptcies of government-backed companies such as battery maker A123 Systems of Waltham and energy storage firm Beacon Power of Tyngsborough have made investors reluctant to back young companies that might need years of capital infusions before becoming profitable. Cheap natural gas prices are making the new technologies less competitive. Government support is waning as Washington tries to bring ballooning budget deficits under control.
The wind energy sector, for example, is waiting for federal leaders to extend the production tax credit, which helps lower project costs and spurs development but expires at the end of the year. Each time it has been allowed to lapse in the past, wind projects have stalled.
The industry, however, encompasses a variety of energy technologies, and some are poised to advance in the next year. The solar and energy efficiency sectors expect another year of double-digit jobs and revenue growth, driven by mandates calling for the increased use of both technologies. In Massachusetts, clean technology companies are expected to benefit from aggressive state policies to bolster the industry.
But whether that will be enough to combat competition from overseas, especially China, is in question. China has wooed several clean technology manufacturing operations from Massachusetts in recent years, while Chinese firms have stepped up clean-tech investments in the United States. If the state and the nation hope to remain leaders in clean technology, companies here must figure out how to push their technologies forward with modest funding. - ERIN AILWORTH
Technology: another big year for state’s innovators
In technology, all signs point to another big year for Massachusetts. Some of the state’s hottest start-ups, such as the Cambridge software firm HubSpot Inc. and Boston’s network security company Rapid7 Inc., are poised to launch initial public stock offerings, which will pump more cash into the state’s innovation ecosystem.
But what could be even more promising is a growing interest among venture capitalists in funding tech start-ups that work in mobile technology, robotics, big data analytics, and enterprise software — all areas in which Massachusetts companies excel.
One of the most talked about tech trends is another Massachusetts specialty known as big data. This segment of the tech industry uses sophisticated software to analyze massive datasets collected from the Internet and other sources.
Big companies such as EMC Corp. of Hopkinton and tiny start-ups such as Sqrrl Data Inc. of Cambridge are banking on big data getting bigger. But as consumer data becomes more of a commodity, Congress will consider legislation in 2013 to increase privacy safeguards around the public’s online information.
Another piece of federal legislation that could affect the region’s innovation economy is the JOBS Act: The Jump-start Our Business Startups law, enacted earlier this year, allows start-ups to raise money from the public over the Internet.
The Securities and Exchange Commission must adopt rules to govern so-called crowd funding, but if it does, 2013 could be the year that dramatically changed how companies get started. - MICHAEL B. FARRELL