Recovery of jobs lost in state seen taking years

By Robert Gavin, Globe Staff, 10/17/2003

WESTBOROUGH -- The Massachusetts economy is beginning to rebound, but it is likely to take years for the state to recover the tens of thousands of jobs lost in a recession that was among the worst in the state's modern history, according to an economic forecast.

Even by the end of 2006, Massachusetts is projected to have about 9,200 fewer jobs than it did when state employment peaked in the first quarter of 2001 at about 3.37 million jobs, according to the forecast, released here yesterday by the New England Economic Project. Nearly 160,000 jobs were lost during the state's recession, which lasted three times longer than the national downturn.

The region entered the recession "earlier, and got out significantly later," said Michael Goodman, a University of Massachusetts economist who prepared the forecast. "Now we're waiting for business to take the next step, and pardon the expression, `cowboy up' and start hiring."

The long, slow climb ahead -- job growth next year is projected at an anemic 1 percent -- is a product of how far, and how fast, the state's economy fell during the recent recession. The state's concentration of technology and financial services firms, the hardest hit by the bursting of the Internet and stock market bubbles, made the recession here far more severe than the nation as a whole.

Nationally, the recession, measured by the output of goods and services, ended in November 2001, lasting slightly less than three quarters. By the same measurement, the Massachusetts contraction lasted nine quarters, ending in mid-2003, said Goodman, the director of economic and public policy at UMass's Donahue Institute.

Meanwhile, Massachusetts experienced far deeper job losses, shedding about 5 percent of its peak employment base, compared to about 2 percent nationally. "Our highs are higher," said Goodman, "but our lows are lower."

Also creating a drag on the state's economy are its high costs, with economists yesterday singling out housing in particular. With supplies expected to remain tight -- blamed in part on state and local development regulations -- economists said prices are likely to continue to climb, although not at the rates seen in recent years. Even with the weak job market, Goodman noted, the average selling price of a detached single-family home in Greater Boston in the second quarter of 2003 rose 3.2 percent from year ago to more than $528,000.

High costs make it harder for businesses to compete and are viewed as barriers to attracting and keeping skilled workers, particularly the young and mobile, that are vital to the state's innovation economy. Yesterday, the US Labor Department had more bad news on the cost front: Inflation in Greater Boston grew at nearly twice the rate as the nation, with prices in September rising 3.9 percent from a year ago, compared to 2.3 percent nationally.

Boston, in fact, experienced the biggest year-over-year jump in prices among 14 large metropolitan areas, even beating New York, where prices jumped 3.3 percent, said Denis McSweeney, regional commissioner of the Bureau of Labor Statistics' Boston office. Energy prices are up more than 20 percent from a year ago, while Greater Boston residents paid the highest gasoline prices since the Labor Department began tracking prices at the pump in 1978.

The average price of a gallon of gas in September was $1.83.

"What this does is take away money from what businesses and consumers have to spend," McSweeney said.

These rising prices are among the risks to what remains a fragile recovery. Still, economists said the worst for the national and regional economies appear over. Mark Zandi, chief economist at Economy.com, a West Chester, Pa., consulting firm, said that most signs point to an accelerating national economy that should see a rebound in hiring and an end to the so-called jobless recovery. Among them: rising confidence, consumer demand, and corporate profits.

A stronger national economy, of course, would help pull along the economies of Massachusetts and New England, although both are expected to lag. In 2005, when employment growth is projected to peak, the United States should be adding jobs at annual rates of about 2 percent. Annual job growth in Massachusetts and New England is projected to fall slightly short of 2 percent.

Of the six New England states, New Hampshire is the only one expected to grow faster than the United States rate, projected to see employment grow by 2.3 percent in 2005. Job growth remains the missing element to a recovery that so far has seen production, productivity and profits pick up. Without it, it's unlikely the rebound can be sustained, Zandi cautioned.

"All the preconditions for businesses to step up and hire are in place," he said. "But if job growth doesn't pick up, we're in trouble. We need those jobs and we need them now."

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