As US lags, economy in Mass. soars

The Massachusetts economy surged in the first quarter, nearly quadrupling the national growth rate and recalling the technology-driven expansion of the 1990s.

The state's economy grew at a 4.7 percent annual rate in the first quarter, the fastest pace in nearly 7 years, according to a report yesterday from the University of Massachusetts. The US economy grew at a 1.3 percent rate, its worst performance since early 2003, the Commerce Department said.

These reports represent a dramatic reversal. For most of the past few years, Massachusetts lagged the nation as the state's economy slowly shed the effects of the technology bust that began around 2001.

Technology, however, is again driving growth here, UMass analysts said. Global demand for the state's technology and medical products has increased, and that has fueled strong job growth, said Alan Clayton-Matthews, a professor of public policy at UMass-Boston and the UMass report's lead analyst.

The state added an average 5,000 jobs a month in the first quarter, accelerating from less than 3,000 a month in 2006, ac cording to the state Executive Office of Labor and Workforce Development. Job growth was particularly strong in February and March, expanding at annual rates above 2 percent, similar to those of the Internet boom of the 1990s, Clayton-Matthews added.

"We're again seeing a surge in employment, particularly in technology and scientific areas," Clayton-Matthews said. "The big unknown question is whether this is the beginning of another tech-related high growth period."

Technology companies over the past year have said hiring qualified people is much harder; wages are surging for some jobs; and there have been bidding wars to attract chief executives at some companies. Job growth typically results from broader economic growth, which is measured by the production of goods and services.

The changed employment picture can be seen in the breakdown of some tech sector job categories. For instance, employment in scientific research and development rose 5 percent over the past year, according to state figures. Jobs in computer systems design rose 3 percent. Overall employment in the state rose about 1 percent.

"Employers are hiring because of the demand they're seeing for their products," Clayton-Matthews said.

The tech recovery has clearly boosted the state's economic prospects. Massachusetts exports, about two-thirds of which are technology-related, hit a record $24 billion last year, and are running ahead of that pace so far this year.

In the first two months of 2007, the most recent data available, exports of pharmaceutical products rose 23 percent from a year earlier, while those of industrial machinery, which includes computers, jumped 28 percent, according to the World Institute for Strategic Economic Research, a nonprofit research group at Holyoke Community College.

Massachusetts growth in the face of the national slowdown illustrates the different make-up of the state's economy. The nation depends primarily on consumer spending. Massachusetts, however, relies on business spending since it has a high concentration of firms that sell goods and services to other companies.

During recoveries, it typically takes a while for business spending to catch up with consumer spending.

Companies tend to wait until a recovery is well-entrenched before investing in plants, equipment, and business services. That's why Massachusetts tends to lag the nation.

Nationally, the unraveling of the housing market was largely responsible for the sluggish growth in the first quarter, said Nariman Behravesh, chief economist at Global Insight, a Waltham forecasting firm.

While housing nationally should remain a drag throughout the year, its problems are unlikely to push the economy into recession, Behravesh said. Consumer spending remains solid, despite the housing slowdown and rising gasoline prices.

"There's very little spillover into the rest of the economy," Behravesh said.

So far, the Massachusetts housing market hasn't declined as much as elsewhere, and some economists think it may be bottoming out.

Nonetheless, Clayton-Matthews said a weakening housing market still poses a risk to the Massachusetts economy. He added that if the housing shake-out lowers prices, it could prove a benefit by making the state more attractive to workers.

A lack of workers presents a threat to the recovery, Clayton-Matthews said. During the recent economic struggles, Massachusetts experienced an exodus of workers seeking better prospects. Now, with the recovery accelerating, the state's going to need more workers to keep the expansion on track.

"There's still some slack in the labor market before we get crunched," he said, "but we need more growth in the labor force. It's going to take a reversal of migration."

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