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Slower Mass. growth still beats US

State shows steady improvement but not in all sectors

By Robert Gavin
Globe Staff / October 30, 2010

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The economic recovery in Massachusetts slowed in the third quarter of the year, but the state’s economy, buoyed by strong technology spending, expanded at nearly double the rate of the US economy, the University of Massachusetts reported yesterday.

In its last economic report before Tuesday’s election, UMass depicted a state economy that has improved steadily since the beginning of the year, but hit some headwinds as the national recovery sputtered. Even though the state unemployment rate has declined steadily, falling to its lowest level in more than a year, the pace of job growth slowed considerably in recent months, the report said.

Wage and salary income grew modestly in the third quarter, but combined consumer and business spending fell. Foreign exports experienced strong increases. Consumer confidence remained weak. The outlook over the next several months: slower growth.

The report reflects a recovery that has spread its benefits unevenly, said Michael Goodman, a professor at the University of Massachusetts Dartmouth. Industries such as technology and scientific research have experienced solid growth, while blue collar sectors struggle.

“It’s a feast-or-famine recovery,’’ Goodman said. “It is still largely concentrated in those sectors of the economy considered white collar, while manufacturing and construction workers are continuing to suffer.’’

Economic growth in the three months that ended Sept. 30 produced the third consecutive quarter in which the Massachusetts economy outperformed the nation as a whole, UMass reported in its quarterly journal MassBenchmarks. The state economy expanded at a 3.7 percent annual rate in the third quarter, decelerating from a 4.7 percent rate in the second quarter, and 6 percent in the first.

The nation’s economy grew at a 2 percent annual rate last quarter, compared to 1.7 percent in the second quarter and 3.7 percent in the first, the US Commerce Department reported yesterday.

“We’re coming off a period of very rapid growth, and it’s slowing,’’ said Alan Clayton-Matthews, a Northeastern University economics professor who analyzes a variety of data to estimate the state’s economic growth for the UMass journal. “But it’s still stronger than the US, and I expect we’re going to be growing faster than the US over the next six months.’’

Massachusetts has recovered more quickly than the nation as a whole largely because of an industry mix that depends more on technology and business spending, and less on consumer spending and housing. Sluggish growth in consumer spending, which drives about 70 percent of the nation’s economic activity, has weighed on the US recovery.

Consumer spending, however, plays a smaller role in Massachusetts, which has a concentration of companies that sell goods and services, particularly technology products, to other businesses.

Global demand for technology has powered the state’s recovery as businesses continue to invest in these products, Clayton-Matthews said. The Commerce Department reported yesterday that business spending on equipment and software rose at a 12 percent annual rate in the third quarter, after surging at a 25 percent rate in the second quarter, and 20 percent in the first.

The solid, but slowing, business spending reflects similar trends in the broader state economy. Statewide employment, for example, grew at a nearly 2 percent annual rate in the third quarter, less than half the nearly 5 percent rate of the second quarter, according to UMass.

Wage and salary income increased at just a 2 percent annual rate after surging 11 percent in the second. Combined consumer and business spending, meanwhile, declined by a 4 percent annual rate last quarter, following a 12 percent rate of increase in the previous three months.

Ultimately, analysts said, the state is tied to national and global economies, since Massachusetts firms sell a large share of their products in other states and countries. Eventually, as the larger economies slow, so does the Massachusetts economy.

The US economy, for example, has struggled recently, shedding jobs in each of the past four months. The national unemployment rate remains stuck near 10 percent, significantly higher than the Massachusetts rate of 8.4 percent.

UMass forecasted that the state’s economic growth will slow further over the next six months. As a result, Clayton-Matthews said he doesn’t expect to see significant declines in the state unemployment rate until the middle of next year, when the national economy is expected to accelerate.

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