THIS STORY HAS BEEN FORMATTED FOR EASY PRINTING

Bay State heads to a jobless recovery

Work expands while hiring lags; Top local sectors outpace nation

By Robert Gavin
Globe Staff / October 26, 2009

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Many of Massachusetts’ key industries have begun to rebound along with the broader economy, increasing sales and production, but hiring only cautiously - if at all.

That caution is contributing to what is almost certain to be another jobless recovery in Massachusetts and elsewhere, a pattern that has marked economic turnarounds since the early 1990s. Even though the economy is expanding, it is not growing fast enough to generate jobs and reduce unemployment in the state, already at its highest level since the 1970s.

Over the next year, economic activity in Massachusetts will increase more than 2 percent, slightly faster than in the nation as a whole, but employers here will still slice 37,000 more jobs, according to forecasts by Moody’s Economy.com, a research firm in West Chester, Pa. That job loss, while significant, is less than the projected rate nationwide.

Among the industries expected to expand production and still cut jobs are Massachusetts mainstays such as manufacturing and technology.

“We’re at the bottom, and it looks like we’re going to bounce along the bottom,’’ said Michael Goodman, eco nomic analyst and professor of public policy at the University of Massachusetts at Dartmouth. “It’s going to be a long, hard slog.’’

How long and how hard will likely be determined by several key sectors that drive the state’s economy, including biotechnology and health care, technology, financial services, manufacturing, and education.

In many ways, Massachusetts came through the recession better than other parts of the country because of its mix of industries; heavy on technology, education, and health care, and light on construction and automobiles, the sectors hit hardest by the national downturn. The state has lost less than 4 percent of its jobs, compared to more than 5 percent nationwide, while its unemployment rate, 9.3 percent, is a half-point lower than the nation’s.

Many key sectors also outperformed the nation. The state’s biotechnology companies, for example, increased employment nearly 7 percent during the recession, compared to 2 percent nationally, according to Moody’s Economy.com. Massachusetts financial services firms cut less than 4 percent of their jobs, compared to job losses of 5 percent nationally.

A number of forces could shape the recovery in Massachusetts, said Eric Rosengren, president of the Federal Reserve Bank of Boston. The weak dollar, which makes US products cheaper in foreign markets, could boost sectors such as technology and manufacturing, which rely on exports. A continued rise in the markets would restore some of the depleted value of endowments at universities, which could then resume construction projects that were put on hold.

For financial services and health care, what happens in Washington may prove more important than what happens in the economy, Rosengren said. Lawmakers and policy makers are considering overhauls to US health care and financial regulatory systems, and the outcome of these efforts could determine how fast those industries grow in Massachusetts.

Ultimately, Rosengren said, the state’s expansion will depend on whether the US economy can transition to a self-sustaining recovery from one fueled by stimulus programs. “The question is what happens when these programs go away,’’ Rosengren said. “To what extent is the private sector going to pick up activity as the government sector pulls back?’’

The answer remains uncertain. At Mason Box Co. in North Attleborough, for example, orders have picked up enough that the firm has recalled “some, not many’’ employees after earlier cutting about 30 percent of the workforce, said company president Hugh Mason. The 118-year-old box manufacturer, which employs about 50 people, plans to move slowly in adding workers, preferring to increase overtime, Mason said.

“We’re skittish [about] bringing back people until we see if this recovery is going to last,’’ said Mason. “We really have to see some optimism out there.’’

Such caution is among the reasons economists expect a jobless recovery lasting into next year. Another reason: Many companies cut employee hours to avoid layoffs, so as business picks up, they are likely to increase hours before hiring new workers.

At the same time, firms are boosting productivity, or getting more production from existing workers. In the second quarter of this year, productivity jumped 6.6 percent nationally, according to the Labor Department, more than triple the historical average.

“Overall, there’s a lack of confidence,’’ said Mark Zandi, chief economist at Moody’s Economy.com. “Businesses are curtailing their layoffs, but they’re not hiring.’’

Hiring has lagged in each of the past two recessions, both nationally and in Massachusetts. The last recession ended in November 2001, but the nation didn’t begin sustained job growth until September 2003. Job growth didn’t resume in Massachusetts until January 2004.

This time, Massachusetts may not lag behind the nation. Many analysts expect technology to lead the US recovery, and already, some of the state’s leading tech companies are reporting solid increases in sales. The state’s housing market is also rebounding, with both sales and prices increasing in recent months.

Certainly, there’s a long way to go. The state’s construction sector, while relatively small, has shed 20 percent of its jobs, or one in five. Real estate also has lost about one in five jobs. State and local governments, struggling with budget shortfalls, are facing major layoffs.

“The state’s economy did weather the economic storm better than other parts of the country,’’ Zandi said. “But this feels good only because we’ve come back from the abyss.’’

In a series of articles this week, the Globe’s business section will examine the condition of the state’s key economic sectors: life sciences and health care, technology, financial services, manufacturing, and education, assessing how they weathered the recession and how they might fare in what is still a tentative recovery. Robert Gavin can be reached at rgavin@globe.com.

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Special Section

The Massachusetts Economy - What's Next?

What's next?

A five-part series on the Bay State economy opens with a look at the life sciences and health care sectors.