The Massachusetts economy deteriorated in the three months between April and June as federal budget cutbacks and tax increases earlier this year undermined the state’s expansion, according to a report by the University of Massachusetts and the Federal Reserve Bank of Boston.
Massachusetts’ economy grew at annual rate of less than 1 percent during that period, lagging the US economy, which grew at a 1.7 percent during the same period the Commerce Department reported Wednesday.
“I’ve never seen a report when the economy is supposed to be growing that’s so somber,” said Robert Nakosteen, executive editor of the journal MassBenchmarks and an economics professor at the University of Massachusetts at Amherst. “It’s so deflating in a way.”
The Massachusetts economy has largely outperformed the nation’s since the 2008 recession, but employers have slowed hiring in recent months. The unemployment rate in Massachusetts rose to 7 percent in June from 6.4 percent in March, while the U.S. unemployment rate has hovered near 7.6 percent during the same period.
The Commerce Department also revised downward its estimate of the nation’s economic growth between January and March to 1.1 percent from 1.8 percent. As a result, UMass revised its estimates of first quarter growth, to 2.8 percent from an initially reported 3.4 percent.
Economists said the automatic federal budget cuts known as sequestration and broad increases in taxes that went into effect this year have slowed business activity and hiring in the state. The federal spending cuts have disproportionately affected Massachusetts’ because of its high concentration of federally-funded defense and research programs.
Improvements in the stock market and the Massachusetts housing market have helped off-set some of the effects of these austerity measures. Boston area home prices increased 7.5 percent compared with the same time last year, according to the S&P/Case-Shiller Home Price Indices,the eleventh consecutive month of year-over-year improvements.
Nationwide, home values ballooned in May, gaining 12.2 percent compared with the same month last year, according to the index.
Whether improving stock and housing markets are enough to sustain a recovery in the face of continued government cutbacks is unknown, the MassBenchmarks report said.
“It remains unclear as to whether the positive push represented by those factors driving state growth will be able to overcome the counterproductive pull of federal policy in the months to come,” it read.
Northeastern University economics professor Alan Clayton-Matthews, who compiled and analyzed the state data, said a slowdown was expected after years of steady growth in the state.
Employers have slowed their hiring in recent months, he said, noting that there was essentially no job growth in Massachusetts between April and June, while the unemployment rate rose.
The increase in the jobless rate may be partly due to people who had given up looking for jobs returned to their searches as the economy improves.. The unemployment rate does not include those not actively seeking work, and it can rise as more people enter or re-enter the job market.
Still, the rise in unemployment is “disturbing,” Clayton-Matthews said, disproportionately affecting young workers and those without a high school diploma. In today’s labor market, employers have their pick of prospective employees and can hire someone with college degree—even for a position that typically does not require one.
“Employers are just being extremely picky—and they can be about who they hire,” he said. “It’s the people at the bottom of the queue, youth and those with lower educational attainment who are not able to get jobs.”