Strong State Economy Buffeted by Trade, Political Headwinds
By Michael P. Norton
STATE HOUSE NEWS SERVICE
BOSTON -- Massachusetts is heading into the post-election period with steady but slowing economic growth, low unemployment, and business confidence levels that are being chopped downward by employer concerns over trade and bitter political divisions, according to recent economic reports.
Beacon Hill officials just dispensed with a fiscal 2018 surplus that helped grow the state rainy day fund balance to more than $2 billion, and tax officials on Monday said a new revenue cushion, estimated at $350 million, has developed in the early months of fiscal 2019 due to strong tax revenue growth.
Confidence among employers in Massachusetts, meanwhile, remains firmly in positive territory but fell in September to its lowest point since May 2017.
With a reading of 61 - well above the neutral level of 50 - the Associated Industries of Massachusetts (AIM) Business Confidence Index lost 1.6 points in September, the fourth time in the last five months that business confidence has slipped, the trade group announced Tuesday in an Election Day report.
AIM officials noted large declines in confidence among employers in their own operations and among manufacturers.
“Fears about slowing growth, trade wars and rising interest rates buffeted financial markets this month, and some of those same fears, combined with an increasingly acrimonious mid-term election, affected employers as well,” Raymond Torto, chair of AIM’s Board of Economic Advisors, said in a statement.
Medium-sized companies registered higher confidence than large or small companies, which officials called an “unusual result” since large companies tend to show the most optimism on the index.
Large companies are likely reflecting concerns about trade tensions between the United States, China and other commerce partners around the world, according to Katherine Kiel, an economics professor at The College of the Holy Cross in Worcester and member of AIM’s Board of Economic Advisors.
“Employers responding to the survey are expressing fears about the potential effects of rising tariffs both on the price of raw materials and their ability to expand overseas markets,” Kiel said in a statement.
The business trade group said its index assessing business conditions within Massachusetts rose slightly in September, but the U.S. index lost 2 points to 61.6 and the company index measuring employers’ assessments of their own operations dropped 2 points to 59.6, down 2.4 points year-over-year.
Real gross domestic product (GDP) in Massachusetts grew at an estimated 3.3 annualized rate during the third quarter, according to data released in late October by MassBenchmarks, an economics journal published by the University of Massachusetts Donahue Institute with the Federal Reserve Bank of Boston. Nationally, real GDP grew at a 3.5 percent annualized rate during the third quarter, according to a U.S. Bureau of Economic Analysis estimate.
The data shows the state economy slowed from a 5.9 percent growth rate during the second quarter, but grew at a faster clip than the 1.5 percent annualized rate recorded in the first quarter, according to MassBenchmarks. In 2017, the Massachusetts economy grew 2.6 percent while the U.S. grew 2.2 percent.
The Massachusetts jobless rate remained low in September, at 3.6 percent, compared to 3.7 percent nationally. Consumer and business spending, as measured by sales tax and motor vehicle sales tax collections, rose at an 11 percent annual rate in the third quarter, and that spending measure has grown 7.6 percent since the third quarter of 2017, according to MassBenchmarks.
In another gauge of the economy, the Massachusetts Department of Revenue reported Monday that tax collections in October of $1.9 billion were up 4.7 percent over October 2017 and state tax receipts four months into fiscal 2019 are up 8.5 percent, or $695 million over the same period in fiscal 2018.
“October’s results were consistent with our expectations for steady, moderate growth,” Revenue Commissioner Christopher Harding said in a statement, adding that volatile estate taxes are boosting revenues. Withholding and sales taxes, which account for 70 percent of annual revenue, are roughly at benchmark.
Massachusetts lawmakers wrapped up formal legislative deliberations for the year in July without reaching agreements on important health care and education bills. Supporters of those bills say major investments are needed in both K-12 education and the community hospital sector in Massachusetts.