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The Economic Outlook for Massachusetts in 2005

By Michael D. Goodman, Ph.D., Director of Economic and Public Policy Research,
University of Massachusetts Donahue Institute

The state's economic recovery is gathering momentum although the Commonwealth has consistently grown more slowly than the US since the recovery began in mid 2003. According to the Massachusetts Benchmarks Current Economic Index, the growth in the state's real gross state product has steadily accelerated from an annual rate of 0.3 percent in the second quarter of 2003, to 3.3 percent in the third quarter of this year. In contrast, U.S. real gross domestic product grew at a 3.9 percent annual rate in the third quarter of 2004. Employment growth has returned in recent months but to date job creation has been anemic. During the first three quarters of 2004, only about 7,000 jobs were created in Massachusetts.

According to the NEEP December report, there were 1200 more manufacturing jobs as of December 2004 in Massachusetts. While this growth was modest (.04%), in light of the decline of the job sector in recent years, this is welcome news indeed.

The New England Economic Partnership's latest forecast for Massachusetts indicates that despite the recent robust growth in national business investment in technology, which normally disproportionately benefits the Massachusetts economy, economic growth in the Bay State will continue to proceed at a slower pace than the national expansion in 2005.

Specifically, the Fall 2004 NEEP forecast for Massachusetts projects that approximately 43,400 jobs will be created in Massachusetts in the remainder of 2004 and 2005. Significantly, over 7 out of 10 of the new jobs projected to be created during this period are expected to be in the Education and Health Services and Professional and Business Services super sectors. At the present pace, the state will not regain jobs lost in the recent recession until 2008.

What cannot be precisely forecast, but what our state's economic history has taught us, is that if our economy is to expand more rapidly and create more jobs, the industries that make up our innovation economy will drive this growth. For that hope to be fully realized, the Commonwealth must continue to capture its disproportionate fair share of jobs and investment in existing and emerging innovation industries. And that, in turn, depends upon maintaining and expanding the substantial innovative capacity of our people and institutions.

The competition is making strategic investments in its innovation infrastructure. Massachusetts can no longer afford to expect leadership in the innovation economy to be its birthright. The costs of doing nothing are steep indeed. And they are getting steeper.

About the Author
Dr. Goodman is the Managing Editor of Massachusetts Benchmarks, the quarterly journal of the Massachusetts economy published by the University of Massachusetts in collaboration with the Federal Reserve Bank of Boston. To obtain a complimentary subscription, please visit http://www.massbenchmarks.org/current_issue.html.

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