The Massachusetts unemployment rate last month jumped to its highest level in nearly two years as a federal budget cuts, weakening global growth, and uncertainty about US economic policies slowed the state’s expansion.
Unemployment rose to 7 percent from 6.6 percent in May to reach the highest rate since November 2011, the state Executive Office of Labor and Workforce Development reported Thursday. Massachusetts employers increased payrolls by 2,800 jobs last month—after adding 6,700 jobs in May—but the pace of hiring remains too slow to absorb workers entering or re-entering the job market.
“This is very little job creation at best,” said Andre Mayer, senior vice president for research at Associated Industries of Massachusetts, a business group. “The economy is continuing to get better, but so slowly that employers are not being compelled to add personnel.”
Local economists have predicted that the state economy would slow in 2013 before accelerating next year. Since the end of the recession, the Massachusetts economy was largely growing faster than the nation as a whole, adding jobs at a solid pace as technology, health care, and other key industries rebounded strongly.
The state earlier this year regained all the jobs lost in the last recession, even as national employment remains about 2 million jobs below the pre-recession peak. The national unemployment rate, 7.6 percent, is also higher than the state’s.
But the state economy has weakened in recent months. The unemployment rate has climbed a half-point since the beginning of the year, in part because more people are looking for work as the job market improves. The unemployment rate does not include discouraged workers who have given up their search, so unemployment can rise as more of those workers resume job hunts.
At the same time, the pace of hiring has slowed significantly. Employers added an average of 4,800 jobs a month in the first quarter, but only about 2,100 in the second quarter, which ended in June.
Several factors have contributed to the recent slowdown, according to analysts. The increase in federal payroll taxes that went into effect earlier this year combined with rising food and gasoline prices are restraining consumer spending.
Federal budget cuts known as sequestration and uncertainty about future policies are also having an impact. Massachusetts, with its concentration of universities, hospitals, technology, and defense-related firms, relies more heavily on federal spending than other states, and economists at the University of Massachusetts have estimated that the budget cuts will cost the state tens of thousands of jobs over the next several years.
Employment in scientific research and development is one indicator that federal funding cuts are weighing on economic growth in Massachusetts, said Alan Clayton-Matthews, an economics professor at Northeastern University. That industry added jobs steadily throughout the recovery, but hiring over the past six months has been flat, Clayton-Matthews said.
“Mostly due to fiscal austerity,” Clayton-Matthews said, “It’s been very, very slow.”
Meanwhile, much of Europe, the state’s biggest trading partner, remains in recession. Massachusetts exports to Europe have plunged more than 20 percent from a year ago, according to World Institute for Strategic Economic Research, a group in Leverett that tracks trade statistics. China, another major market for Massachusetts companies, is also slowing.
A recent survey by AIM blamed this combination of domestic and international factor for pushing business confidence lower in June. Massachusetts employers also cited the budget deadlock in Washington and uncertainty over how long the Federal Reserve will maintain its stimulus policies as reasons for their darkened outlooks.
Four of the 10 private sectors tracked by the state shed jobs in June. Professional, scientific, and business services lost 1,900 jobs; trade, transportation and utilities, which includes retailers, lost 900, while manufacturing and information, a technology-related sector, each lost 100.
Education and health services led the private sector gains, adding 1,300 jobs in June. Leisure and hospitality, which includes hotels and restaurants, added 700 jobs.; personal and repair services added 700 jobs; construction gained 600; and financial services gained 300.
Government added 2,100 jobs last month.