What's really happening in the state's economy?

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    What's really happening in the state's economy?

    Megan Woolhouse filed a story in the Globe describing faster, post-recession growth during the first quarter of 2012 than the average for the U.S. [ Mass. economy grows strongly, April 27, 2012, at http://www.boston.com/Boston/businessupdates/2012/04/mass-economy-grows-strongly-first-quarter-doubling-pace/dXKve7UlnJT6efbz9KR0OL/index.html ]

    Advised by economists at UMass and FedBoston, she ascribed the state's strong performance to technology business--mysteriously mentioning "semiconductor sales" when the state's remaining businesses related to that area today are dominated by defense contractors.

    A more enterprising reporter might have looked for a better explanation and a broader base of information but would have discovered that those were hard to find. The U.S. Bureau of Economic Analysis grinds data slowly and produces results once a year. Its last report was for calendar 2010. [ Real gross domestic product by state, June 7, 2011, at http://www.bea.gov/newsreleases/regional/gdp_state/gsp_newsrelease.htm ]

    In striking contrast to Ms. Woolhouse's explanations, the strongest economic performance through 2010 was not found in states usually identified as technology centers. Instead, it was in states that are part of the Appalachian Mountain corridor, stretching from Tennessee and North Carolina to Vermont and Massachusetts. Some states located just beyond this corridor, including Georgia and New Hampshire, had drastically worse economic performance.

     
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    A broader view

    A more thorough report about the economy might have provided readers with a chart showing how GDP growth has changed, like the following one. David Leonhardt at the NY Times, who trained in applied mathematics, is the only business reporter for general media who does this much today. [ Data source: U.S. Bureau of Economic Analysis, at http://www.bea.gov/iTable/index_nipa.cfm ]



    Interval 1 in this chart is the first quarter of 2006, and interval 25 is the first quarter of 2012. The blue line is quarter-to-quarter changes in the U.S. "real" inflation-adjusted gross domestic product. It's bumpy, often hopping up or down a percentage point or more. Mostly, those aren't reliable indicators.

    The magenta line is year-to-year changes, lagged two quarters so that they appear at midpoints between the two intervals being compared. A longer, annual period of comparison smooths out the bumps and shows the underlying pattern. However, we can't see what is happening in that mode right now, because effectively it's a time-average. We'll have to wait another six months to find out.

    To no one's surprise, the chart shows that the economy entered recession in interval 9, the first quarter of 2008. The recession was at its worst in interval 12, the last quarter of 2008, and ended in interval 15, the third quarter of 2009.

    Rapid reversal of such a severe recession, with a small overshoot, was most likely a result of the federal "stimulus" programs. As that money ran down, the growth rate fell back, starting in interval 18, the second quarter of 2010. We can see recent signs of what may become sustained recovery, at a modest pace so far.

     

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