Bay State's recession may outlast the nation's

By Robert Gavin
Globe Staff / May 22, 2009
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The recession in Massachusetts will last longer and run deeper than in the nation as a whole, but the state may recover more quickly than it has from earlier economic downturns, according to a new forecast.

In the nation's economy as a whole, the recession is expected to end this fall, but will linger in Massachusetts until early 2010, according to the forecast released yesterday by the nonprofit research group New England Economic Partnership. By the time the labor market hits bottom a few months later, the state will have lost 6.5 percent of its jobs, compared to 5.7 percent nationally.

Still, Massachusetts should emerge from the recession in better shape than it did after the downturns of the early 1990s and 2001, which were led by the collapse of key Massachusetts industries, particularly technology. During the recession that began in 2001, for example, the state lost 6.1 percent of its jobs, compared to about 2 percent nationally. In the early 1990s, employment plunged by more than 11 percent in Massachusetts, compared to 1.5 percent nationally.

This time, Massachusetts is expected to be only marginally worse off than the nation, and the state's key industries remain largely intact, said Alan-Clayton Matthews, the University of Massachusetts at Boston professor who prepared the forecast. In addition, with many other parts of the country in equally bad or worse shape, Massachusetts has been able to hold onto many workers who during earlier downturns fled to find jobs elsewhere.

Those factors should aid the state's recovery and help Massachusetts regain all of its lost jobs by 2013, about five years after the recession began, according to Clayton-Matthews. In contrast, it took about nine years to regain the jobs lost in the downturn of the early 1990s. The state never recovered all the jobs lost in the 2001 recession.

"We're fairly in sync with the national economy," Clayton-Matthews said. "When the recovery does come, we will be growing faster and recovering faster than in the last recession."

The fact that Clayton-Matthews and other analysts discussed the shape of a recovery at yesterday's forecasting conference illustrates how the economy has begun to stabilize in recent months. In the fall, when the New England Economic Partnership held its last conference, the national economy was in free fall and was pulling the region down with it. Few analysts could see when it might hit bottom.

But many economists now see an end in sight. While the economy is still weakening, the rate of decline has slowed, the first step toward a recovery. For example, the nation shed just over 500,000 jobs in April, compared to more than 700,000 in January.

"The downturn is intense, but not intensifying," said Mark Zandi, the chief economist of Moody's, who presented a national forecast at the conference.

In a speech in Worcester yesterday, Eric Rosengren, the president of the Federal Reserve Bank of Boston, said the economy may begin to rebound by end of the year, thanks in large part to aggressive actions by the Federal Reserve, the Obama administration, and Congress. The Fed has cut its key interest rate to near zero and pumped trillions of dollars into the financial system.

Congress earlier this year approved a nearly $800 billion package of spending and tax cuts aimed at creating jobs and boosting the economy.

Still, Rosengren said he expects the economy to recover slowly. The financial system, while improving, will take time to repair and restore a normal level of lending, he said. The housing market, still slipping, will also need time to heal, he said. Meanwhile, consumers, who have lost wealth as stock and home values plunged and unemployment rose, will likely continue to spend cautiously.

"My best judgment is that a rather slow recovery is likely," Rosengren said. "Unfortunately, such a forecast implies continued weakness in the labor market, and an unemployment rate that continues to rise through this year."

Jobless statistics released by the state yesterday underscored that a recovery, while in sight, is still far off. The unemployment rate in Massachusetts climbed to 8 percent in April, from 7.7 percent in March, reaching its highest level since January 1993. Massachusetts employers cut more than 12,000 jobs last month, after slicing nearly 20,000 in March.

The state has shed nearly 120,000 jobs, or 3.6 percent of employment, since the recession began in Massachusetts early last year.

By the time the labor market hits bottom, expected to be around mid-2010, it is projected the state will lose more than 200,000 jobs and the unemployment rate will rise to 9.5 percent, which would be the highest since 1976.

Ross Gittell, a University of New Hampshire professor who prepares the New England forecast for the partnership, estimated the region's economy is about two-thirds of the way toward hitting bottom.

"The worst may be over," Gittell said. "We've moved from this Great Recession to just a bad economy."

Robert Gavin can be reached at