ECONOMIC INDICATORS

MassBenchmarks: Outlook positive, but sequestration is ‘major threat’

BLOOMBERG FILE PHOTO/BRENT LEWIN
MASSACHUSETTS' ECONOMY is poised for growth in 2013, but threatened by the looming government budget sequester.
Posted 2/26/13

BOSTON – After a relatively good year in 2012, the Massachusetts economy is poised for expansion, according to the Leading Economic Index released Tuesday by the MassBenchmarks editorial board, which added that sequestration was a “major threat to state economic growth.”

Payroll employment and gross domestic product growth in Massachusetts both outpaced their national counterparts in 2012, according to the report.

“We await a forthcoming revision to the employment growth indicator to see if our measure of its positive performance holds up,” said the board. “Looking to the future offers reasons for some cautious optimism despite the threat to the recovery presented by looming fiscal austerity policies set to take effect in March.”

A positive note, according to the board’s report, is that the global economy is at an “inflection point,” that will help stem the decline in state exports and should eventually lead to a rebound. “Europe and China are among the state’s most important export destinations, so developments in these places have a direct impact here,” said the report.

Massachusetts’ residential real estate market has “firmed” and is experiencing modest growth, said the board, which added that the state’s employment is also expanded though it is still 1.2 percent below its pre-recession peak.

“All in all, the state has experienced a reasonably healthy recovery from the recession, and will probably experience modest growth in the coming year, building on this economic momentum,” said the board.

The MassBenchmarks board went on to say that the problem with forecasting the state’s 2013 economic performance stems from “major issues at the national level that remain unresolved for now,” the most important of which is the federal government budget sequester.

“The state economy depends disproportionately on sectors of the economy that will be hard hit by these budget cuts,” said the report, which added that the state’s technology sector has important links to the Department of Defense and both the state’s universities and health sector receive “considerable federal funding.”

“All these sources of federal support are in jeopardy, but the extent of the cuts remains unknown and their likely impacts on the Massachusetts economy are hard to predict,” said the report. “Nevertheless, consumer and business confidence will likely continue to decline, which may hinder the spending plans in both sectors.”

Overall, the board said its outlook for 2013 was positive. “Growth will continue, though modestly,” said the report, quoting one unnamed board member, who said: “The economic clouds have parted but not lifted.”

“The recovery has been tepid, with implications for jobs and unemployment. Our economy has shown continued resilience, but we must closely track political and economic developments both in Washington and overseas,” concluded the report.

To read the report online, visit: www.massbenchmarks.org.

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