Massachusetts economy is shrinking

By Robert Gavin, Globe Staff

The Massachusetts economy shrunk for the third consecutive quarter as rising unemployment and weak consumer spending undermined what earlier seemed to a be a recovery in the making, the University of Massachusetts reported today.

The state economy contracted at 1.1 percent annualized rate in the three month period ending September, following declines of 2 percent and 4.4 percent in the second and first quarter respectively, UMass said in its quarterly MassBenchmarks bulletin. The performance was far weaker than the US economy, which grew at a 3.5 percent annual rate, the US Commerce Department reported today.

The US economy was lifted by one-time federal stimulus programs, such as the recently expired "cash-for-clunkers" tax credit for automobile buyers and the $8,000 credit for first time homebuyers, which expires at the end of next month, economists said. These programs disproportionately benefited states with large auto-related manufacturing sectors, and those with severe housing declines, said Michael Goodman, an economic analyst and professor of public policy at the UMass-Dartmouth.

Massachusetts has a tiny auto sector while its housing decline was far less severe than many other states that experienced building booms, such as Florida, Nevada, and California.

"The apparent strong performance of the national economy may be misleading,'' Goodman said. "While it it's clear that the Massachusetts economy continues to fight its way through this difficult recession, today's [national economic] report reflects, among other things, the impact of one-time programs."

The state's economy has likely hit bottom, and will resume growing in the current quarter, expanding weakly as the state's housing market continues to recover and worldwide demand for technology products picks up, UMass projected.

It appeared the state economy had begun a turnaround this summer as job losses steadily diminished and other indicators, such as a pick-up in national and worldwide technology sales, suggested a rebound here. But job losses, which had slipped to 700 statewide in August, accelerated to more than 9,000 in September, while the unemployment rate rose to 9.3 percent, the highest level since 1976.

State tax collections also plunged, another indicator of weakening economic activity.

"The state entered the recession later than the US, and so appeared to be performing better than the US through the spring of this year,” said Alan Clayton-Matthews, a Northeastern University economics professor who analyzes a variety of economic data for the UMass report. “However, recently released income and tax revenue data suggest that the state’s economy continued to decline through the third quarter."