Economy in state outpaces US growth

Adds 4,600 jobs through March

The Massachusetts economy expanded at a healthy clip in the first three months of the year despite a national economic slowdown, breaking with the recent past when the state suffered longer and deeper recessions than the rest of the United States.

The University of Massachusetts said yesterday that the state's economy grew at a 3.2 percent annual rate, about five times faster than the 0.6 percent national rate reported yesterday by the Commerce Department. During that period, Massachusetts employers added 4,600 jobs, even as companies nationwide cut more than 200,000.

The difference is the state's technology, biotechnology, and health science industries, which are benefiting from strong national and international demand for their products. For example, EMC Corp. of Hopkinton, one of the state's biggest technology firms, recently reported that revenue rose 17 percent to a record level in the first quarter. Genzyme Corp. of Cambridge, a biotech company, said its first-quarter revenues rose 25 percent from the same period in 2007.

Meanwhile, the state has largely been spared the worst of the housing collapse and mortgage industry meltdown because it did not experience the same level of speculative building as other states, such as California, Florida, and Nevada. In addition, construction jobs, which are tied to homebuilding activity, make up only about 4 percent of payroll employment in Massachusetts, compared with 5.3 percent nationally, according to the Labor Department.

"This reinforces how important innovation is to our economy," said Michael Goodman, director of economic and public policy research at the University of Massachusetts ' Donahue Institute. "The technology part of our economy is offsetting the housing market."

The state's relative economic strength illustrates the difference between the current downturn and recent recessions, as well as the difference between Massachusetts' economy and the country's. The state depends more heavily on technology, and was hit particularly hard in the early 1990s and earlier this decade when business in technology sectors crashed.

More broadly, the state's economy is not as directly tied to consumer spending as the rest of the United States. Massachusetts has a high concentration of companies that sell goods and services to other businesses, making it more reliant on business spending. The recession that began in 2001 was precipitated by a sharp pullback in business spending, causing Massachusetts to suffer a deeper and longer downturn than the country as a whole.

During that recession, the state shed about 6 percent of its jobs compared to 2 percent nationally. Its recovery didn't begin for more than a year after the national economy began to expand. This time around, however, consumers are leading the downturn. Battered by falling home values, high debt, and rising food and energy prices, many are curtailing spending, which accounts for about 70 percent of national economic activity.

Exports also are helping the state to weather the slump. Sales of Massachusetts technology and other products in foreign markets surged 21 percent in the first two months of 2008 compared with a year earlier, according to World Institute for Strategic Economic Research, a nonprofit research group at Holyoke Community College.

As a result, hiring in technology sectors remains solid. Employment in professional, scientific, and technical services, for example, grew nearly 4 percent over the past year, compared to less than 1 percent for total state employment, according to the state Department of Workforce Development. Software employment rose 5 percent.

"Business investment has held up," said Alan Clayton-Matthews, a professor at the University of Massachusetts at Boston who calculates the state economic growth rates. "Demand for our medical, technology, and science product is growing worldwide."

Nonetheless, consumers here are struggling as they are elsewhere, UMass analysts said. State sales tax collections - a proxy for consumer spending - are flat, Clayton-Matthews said. Meantime, retailers have cut nearly 3,000 jobs, or about 1 percent of employment, over the past year.

Despite its economic performance so far this year, Massachusetts will not escape a national recession for long, said Clayton-Matthews. Eventually, declines in consumer spending force businesses to cut their own spending as demand for products wanes.

Both the Federal Reserve and federal government are trying to revive consumer spending. The Fed yesterday cut its benchmark interest rate by another quarter point to 2 percent, the lowest level since 2004. The federal government this week began mailing tax rebate checks to households.

Neither will come in time to keep weakness in housing and consumer spending from slowing the state's economic growth to an annual rate of 2.5 percent over the next six months, Clatyon-Matthews said. At that rate of expansion, employment growth is likely to stall or decline.

"It's not like we have a robust economy," he said, "but we're doing better than the nation."

Robert Gavin can be reached at rgavin@globe.com.