The latest look at the Massachusetts economy and its place in the national picture was full of paradoxes, the analysts at MassBenchmarks said this week – the labor market is strong, but economic growth has ground to a halt; wage and salary income per worker has grown “briskly” this year, but real wages are actually lower than a year ago.

Massachusetts real gross domestic product fell at an annualized rate of 0.2 percent in the second quarter, MassBenchmarks reported Thursday, while the national economy decreased at a 0.9 percent clip. That comes after just 0.2 percent growth in state GDP and a drop of 1.6 percent nationally in the first three months of the year, according to the BEA. MassBenchmarks reported a state GDP drop of 1 percent in the first quarter. Having two consecutive quarters of negative growth, as the U.S. economy has now had, is often considered a rule-of-thumb mark of a recession.

“Economic growth in both the U.S. and Massachusetts slowed very significantly in the first half of this year despite a strong labor market with good employment gains, a low unemployment rate and a surplus of job openings,” Alan Clayton-Matthews, a Northeastern University professor emeritus and senior contributing editor of MassBenchmarks, said.

He identified a number of factors that have led to lower productivity per worker: job growth has been concentrated in relatively lower-paid sectors; some companies are “labor hoarding” or retaining workers despite dips in demand; and COVID-19 absences are still affecting workplaces. And average per-worker wages and salaries cannot keep up with the highest inflation in decades and are declining.

“This limits real consumer spending, which accounts for approximately two-thirds of all economic activity,” Clayton-Matthews said.

“Finally, rising interest rates are slowing the economy, reducing the demand for residential construction, and lowering asset prices, with predictable indirect effects on consumer and business confidence which can be expected to dampen current and future spending.”

MassBenchmarks, which is published by the UMass Amherst Donahue Institute in cooperation with the Federal Reserve Bank of Boston, said the outlook for the next two quarters in Massachusetts is slow growth around 1 or 2 percent.

“Measures of consumer confidence and business confidence, for example, from the Conference Board for the U.S. and from the Associated Industries of Massachusetts for Massachusetts businesses, are falling, and various surveys of economists put the probability of a recession in the next 12 months at roughly 50 percent,” Clayton-Matthews said.

The U.S. economy shrank from April through June for a second straight quarter, contracting at a 0.9 percent annual pace and raising fears that the nation may be approaching a recession, the federal Commerce Department also reported Thursday.

The decline in the gross domestic product — the broadest gauge of the economy — followed a 1.6 percent annual drop from January through March. Consecutive quarters of falling GDP constitute one informal, though not definitive, indicator of a recession.

The GDP report for last quarter pointed to weakness across the economy. Consumer spending slowed as Americans bought fewer goods. Business investment fell. Inventories tumbled as businesses slowed their restocking of shelves, shaving 2 percentage points from GDP.

Higher borrowing rates, a consequence of the Federal Reserve’s series of rate hikes, clobbered home construction, which shrank at a 14 percent annual rate. Government spending dropped, too.

The report comes at a critical time. Consumers and businesses have been struggling under the weight of punishing inflation and higher loan costs. On Wednesday, the Fed raised its benchmark rate by a sizable three-quarters of a point for a second straight time in its push to conquer the worst inflation outbreak in four decades.

The Associated Press contributed tot this report.

Mixed Signals in Latest Mass. Economy Analysis

by State House News Service time to read: 2 min
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