OVERALL PERFORMANCE

Massachusetts' economic engines are still sputtering

By Robert Gavin, Globe staff, 5/20/2003

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f you want to understand what happened to the Massachusetts economy in 2002, take a look at the revenues in key commercial sectors:

Technology down. Telecommunications down. Manufacturing down. Services down.

As these revenue declines show, the sectors that drive the Bay State's economy continued to struggle in 2002, victims of a sluggish national economy and a technology shakeout -- which, two years after the bubble burst, has yet to completely purge the excesses of the 1990s.

The result has been more job losses as companies cut costs to maintain or improve bottom lines.

For example, according to a Standard & Poor's analysis, Massachusetts' publicly held manufacturers saw revenues fall 11.5 percent in 2002. At the same time, the companies slashed payrolls by 24,000 jobs, or 6.6 percent, according to the state Division of Employment and Training.

Telecommunications, services, and technology companies saw revenues fall by 14.7, 8.1, and 4.9 percent, respectively, while employment in those sectors fell by more than 31,000 jobs, or 5.5 percent.

"We certainly didn't turn any corners in 2002," said Frederick Breimyer, chief economist at State Street Corp. in Boston. "Much of the private sector is under pressure, and the game at this moment is cost-containment."

That Massachusetts companies are aggressively cutting costs and labor costs is evident in reported earnings, which improved in 2002, despite declining revenues.

Manufacturers saw their income rise nearly 600 percent, to $185.4 million from $26.8 million in 2001, while telecommunications, technology, and service companies cut losses substantially. Technology companies, for example, saw losses shrink by 56 percent, to $2.7 billion last year, from $6.1 billion the year before.

Massachusetts has been hit hard by the national economic downturn because of the concentration of technology firms and of firms that sell their products to other businesses, which have been reluctant to spend in the face of an anemic recovery, clouded by war and other uncertainties.

Since the recession began in early 2001, the state has lost nearly 5 percent of its jobs, compared to about 1.5 percent nationwide.

Consumer spending, though, aided by low interest rates, has helped to prop up the national and state economies.

Again, Massachusetts publicly held companies provide an example. Consumer-goods firms saw revenues rise 4.6 percent and income by 29.8 percent in 2002, while retail employment grew by 2,700 jobs, or less than 1 percent.

Another bright spot was health care. Revenues in that sector jumped 68.1 percent in 2002, and income rose 1.5 percent.

Economists say it remains unclear when a resurgence in business spending will materialize. But some positive signs have emerged nationally, including rising investor and business confidence, improving corporate profits, and a resumption of capital investment.

Ultimately, Massachusetts will have to wait for a national recovery before it sees its own prospects brighten. Many economists expect the US economy to regain steam in the second half of the year, but add that it will probably take another six months before new jobs are generated.

Andre Mayer, senior vice president of research at Associated Industries of Massachusetts, said that improving confidence and profits are reasons for optimism. But, he cautioned, "We've been saying the recovery is six months away for two years."

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

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