JOHN BITNER
‘Gradually improving’

Analysts predict that the Bay State will see an economic turnaround in the next six months, despite records that the state is currently in its second biggest recession in history, according to the New England Economic Project.

At the recent NEEP Spring Outlook Conference held in Westborough, analysts released projections for the remainder of 2003 and the years ahead for the six-state region, and the prognosis was hopeful.

John Bitner, chief economist and investment strategist at Boston-based Eastern Investment Advisors, the investment management division of Eastern Bank, said the

New England region is strong, albeit minor setbacks, and the state of the economy in Massachusetts is ready to turnaround.

“The Massachusetts economy is well positioned … and things look like they are gradually improving,” said Bitner. “Housing-related products are selling well, tourism is still weak but it may pick up … overall, the assessment for Massachusetts is that things have stabilized and are gradually improving.”

Bitner said an improved economy will support the financial institutions in the region, and state banks will do better because loans will improve and corporate spending will rise, which will improve capital spending overall.

But despite the favorable forecasting, Bitner cautions some industry-goers.

“The one area [where] financial institutions might lose steam is in the mortgage refinancing market. [Interest rates] haven’t gone up high enough to discourage people from buying a new home, but they have discouraged people from refinancing,” said Bitner. “However, as a whole for the region and the state, the third quarter is expected to be a good quarter.”

Slow Turnaround

NEEP has six New England state forecast managers and an economic metric model for each state for forecasters to base predictions upon, according to Ross Gittell, New England forecast chairman.

Gittell said NEEP has a partnership with the national economic forecasting associations economy.com and “we get the latest economy.com forecast and we use those to drive the variables in each state. Each manager fine-tunes the results to their knowledge in state economics. We go through a quality review process and might suggest some changes and then the final forecasts are produced.”

According to NEEP forecasts, the New England economy is expected to lag behind that of the nation, with the region’s overall economic growth not expected to be at the U.S. average until the second quarter of 2005.

While Massachusetts is still suffering in the state’s recession, economists predict a slow turnaround is looming in the near future. The total number of payroll jobs is projected to decline for one more quarter and employment growth will accelerate slowly, peaking at 2 percent annual in mid-2005.

The Massachusetts unemployment rate will continue to rise moderately from the current level, and the housing market is also expected to cool, with declining sales and level prices for this year. NEEP economists said housing price appreciation would resume in 2004 and later, but at low single-digit rates.

“The excesses of the technology bubble are about wrung out of the economy,” said Alan Clayton-Matthews, Massachusetts forecast manager and assistant professor of pubic policy at the University of Massachusetts-Boston. “Technology spending appears to be headed back into growth after crashing in 2001 and remaining stagnant throughout 2002. The Massachusetts economy should begin to turn around accordingly.”

According to Andre Mayer, senior vice president of communications and research at the Associated Industries of Massachusetts and president of NEEP, Massachusetts is not alone in its struggle to recover from a weak economy.

“The Massachusetts recession has been much longer than the nation’s – but we are by no means alone in that situation, and the national recovery has in any case been a weak one so far. Employment is forecast to follow a similar path with a two-quarter delay: the second half of 2003 will be a period of ‘jobless recovery,’ with employment growth beginning by early 2004,” said Mayer.

Regarding the other five states in the region, economists are slightly more optimistic, but remain cautious.

Forecasters said that Connecticut would experience a modest recovery in 2004 with an accelerated rate of expansion in 2005. Connecticut’s unemployment rate is expected to decline through at least the third quarter of 2003.

While manufacturing jobs continue to dip, Edward Deak, Connecticut forecast chairman, said housing is anticipated to remain the bright spot in the Connecticut economy, with the 2003 home sales just slightly below the record year of 2002.

Charles Colgan, Maine forecast manager, said the Maine economy has held up well in the current period of slow national growth and said, “Maine must first recover from the significant employment cuts of [fourth-quarter] 2002 before it can proceed to grow, assuming that the national economy provides enough momentum to carry Maine along.”

Rhode Island’s relatively flat economy is poised to speed its recovery later this year and into 2004, said Gary L. Ciminero, Rhode Island forecast chairman. Ciminero said Rhode Island’s fiscal situation is not as bad as other states in New England and around the country.

Forecasters said Vermont will enter the typical recovery stride in 2004 and continue to grow over the years, but the New England state providing the most hope is New Hampshire.

NEEP analysts said the Granite State’s manufacturing employment was hit hard in the last downturn, but New Hampshire small business is growing and tourism officials are predicting a good summer for leisure travel therefore increasing revenue to the state.

However, New Hampshire is facing a downside in the housing industry – officials said the pace of housing sales is expected to drop as interest rates rise in the forecast, which will also put downward pressure on the state’s real estate prices. Property values will not increase at all in 2004, and will only increase at the rate of inflation in the following years.

Overall, Gittell said New England would have a slower and more moderate recovery than the nation as a whole.

“Massachusetts is going to take a longer time to get some economic strength back in the economy …there is a high dependency on technology and business services and because of the nature of the national and international recession, there has been a decline in spending and Massachusetts has been particularly hard hit,” said Gittell. “In contrast, New Hampshire will have the strongest economy out of the slowdown – the state’s tourism industry, retail and the consumer end of the economy held up pretty well. New Hampshire is a relatively low-cost state, so businesses find it attractive.”