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U.S., Massachusetts Economies Projected to Accelerate

Posted on May 29, 2013

The U.S. economy is set for strong growth beginning by 2014. The same is true of Massachusetts, outpacing the rest of New England with Greater Boston as its motor. And a resurgent manufacturing sector will add, not lose, jobs in the U.S., the region, and the state over the next five years.

Economic growthThese were the highlights of forecasts presented last week at the Spring Outlook Conference of the New England Economic Partnership (NEEP) held at the Federal Reserve Bank of Boston.

The U.S. economy will grow about 2 percent in 2013, as it did in 2010-12, but the rate will rise in 2014 and 2015 to near 4 percent, Edward Friedman of Moody’s Analytics told the conference.

Moody’s analysis finds that the private economy has found its footing. The firm believes that while current growth is depressed by fiscal drag from the sequester, the restoration of payroll taxes, and other tax increases, the effects of the first two will fade by the fourth quarter.

The 2014-15 GDP numbers are higher than most forecasts largely because Moody’s expects pent-up demand in the housing market to drive consumer spending and job creation. New England will essentially keep pace with the nation, even though it will receive a smaller boost from construction, exports to slow-growing markets (Europe and Japan versus China and Latin America), and may feel prolonged effects of cuts in federal contracts and grants.

Massachusetts is in its fourth year of economic recovery, reported Alan Clayton-Matthews of Northeastern University (a member of AIM’s Board of Economic Advisors) and is one of the few states that have recouped all of their recession job losses.  The current “soft patch” will soon give way to robust growth, constrained after 2015 by demographic factors (mostly retirements).

Professional and Business Services, Leisure and Hospitality, Information, and Health will be the main growth sectors, with Construction rebounding strongly and Manufacturing adding jobs.  Although home prices statewide will be back to their peak (2005) levels by 2017, affordability will continue to improve due to rising incomes.

The conference theme of change in manufacturing was addressed by Martin Schmidt, Associate Provost at the Massachusetts Institute of Technology. He noted that while MIT’s major manufacturing report of the 1980s, Made in America, was concerned with competitiveness in terms of productivity and quality, its current Production in the Innovation Economy (PIE) study focuses on innovation and the route from invention to production.

The American industrial ecosystem, he said, has been “hollowed out” by the loss of large vertically-integrated firms, which has slowed the move from idea to product and eliminated a key piece of workforce development. Start-ups and smaller companies are challenged by the growing services component of manufacturing (custom design, ongoing support) and by limited access to skilled labor and to expensive new technologies, as well as access to capital.

Schmidt, an electrical engineer and nanotechnologist who has been involved in six manufacturing start-ups, observed that America’s venture capital system is not well suited to the large investments and long payback of manufacturing, which opens the door to foreign control of the production phase. There are important advantages, however, to keeping innovation and production together, and therefore to working to restore the “industrial commons” that supports manufacturing.