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Sharp rise forecast in Bay State job losses

Unemployment will reach 8.3% by end of decade, group says

Massachusetts lost 7,000 jobs in October, in construction and numerous other sectors. Massachusetts lost 7,000 jobs in October, in construction and numerous other sectors. (Boston Globe/File 2008)
By Robert Gavin
Globe Staff / November 21, 2008
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Unemployment in Massachusetts will reach its highest level since the early 1990s as the state follows the nation into a deepening recession, according to a new economic forecast.

The forecast, released yesterday by the New England Economic Partnership, a nonprofit group in Walpole, projects the state's unemployment rate will accelerate from its current 5.5 percent, hitting 7.6 percent by the end of 2009 and peaking in the third quarter of 2010 at 8.3 percent.

That would be the highest rate since 1992, when the state was beginning to recover from the deep recession that began in the late 1980s.

"We are caught in a vicious downward cycle," said Alan Clayton-Matthews, a professor at the University of Massachusetts at Boston who prepared the forecast. "It's going to take some time for things to turn around."

Yesterday, the Labor Department said national claims for unemployment benefits jumped last week to 542,000, the highest level since July 1992.

The Massachusetts economy began to slow several months ago in the face of a national economic downturn and probably slipped into recession in early September, as the panic in global financial markets froze credit and battered confidence, economists said.

In September, state tax collections fell sharply, first-time claims for unemployment benefits rose to recessionary levels, and employers cut more than 3,000 jobs.

"The financial crisis has intensified, there are job cuts across the economy, and that's hit Boston," said Arthur Jones, senior economist at CBRE Torto Wheaton Research in Boston.

Yesterday, the state Department of Workforce Development reported that Massachusetts employers cut another 7,000 jobs in October. The unemployment rate rose to 5.5 percent, up from 5.3 percent in September.

Job losses were spread across most employment sectors, led by the sector known as trade, transportation, and utilities. This sector, which includes retailers, shed 2,700 jobs. Construction lost 2,300 jobs; leisure and hospitality, which includes hotels and restaurants, lost 1,600 jobs; and manufacturing, 900 jobs. Educational services, which include colleges and universities, also shed 900 jobs.

"Massachusetts is now feeling the effects of the national recession," said Andre Mayer, senior vice president for research at Associated Industries of Massachusetts, the state's largest employer group. "We were shielded for a time because our local economy is not heavily dependent on hard-hit sectors such as autos and home building, but the broad slowdown is taking its toll."

The national unemployment rate hit 6.5 percent in October, and New England Economic Partnership forecasters said they expect it to peak at 9.2 percent.

In Washington yesterday, Congress approved a $6 billion measure to extend jobless benefits by as many as 20 weeks. President Bush is expected to sign it.

Forecasters said the state would lose 135,000 jobs, or about 4 percent of employment, and New England would lose 250,000 jobs, or 3.6 percent of employment, before the labor markets begin to recover in the second half to 2010.

Massachusetts would lose fewer jobs than in the previous two recessions. The state lost 205,000 jobs, or 6 percent of employment, in the technology-led recession that began in 2001, and 356,000 jobs, or 11 percent, during the recession of the late 1980s and early 1990s.

Until recently, Massachusetts was able to avoid the worst of the current downturn, adding jobs even as the rest of the nation was losing them. The state's strong technology, education, and health sciences sectors provided key support, but the financial crisis and the subsequent erosion of credit, confidence, and consumer spending is now undermining those sectors, economists said.

The partnership's forecast projects the state's economy will shrink until the middle of next year, followed by a slow recovery. Labor markets will lag behind, not beginning to rebound until about a year later.

The housing market hasn't hit bottom yet, either, said Clayton-Matthews. Home prices will fall about another 5 percent by the second quarter of 2010, and remain essentially flat until 2012, he said. All told, the state's median home price will fall about 20 percent from peak to trough, to about $292,000 from $368,000 in the 2005, according to the forecast.

The decline in home prices is perhaps a silver lining for the state's economy, said Clayton-Matthews. Earlier in the decade, soaring housing costs were viewed as hurting economic growth by making it harder to attract and hold onto workers.

But the significantly lower home prices, he said, "should do much to repair the cost-of-living disadvantages that Massachusetts has [in comparison] with the rest of the nation."

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

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