New England economic forecast: Worst over but growth slow

Posted May 20, 2010, at 5:05 a.m.

BOSTON — A new forecast says New England will not return to pre-recession job levels until the middle of 2013.

University of New Hampshire economist Ross Gittell, the author of the forecast, says the worst is over and the economy is turning a corner. But it will take an extended period of time to recover the nearly 366,000 jobs lost in New England over the past two years.

The New England Economic Partnership produced the forecast. It says that all six states are expected to see employment growth by the end of the current quarter, but the region’s unemployment rate will continue to rise to a peak of 9.3 percent by the start of 2011. Gittell says the unemployment rate is likely to continue rising because the labor force is expanding.

The partnership Thursday provided this state-by-state forecast for the region:

Connecticut: A modest recovery is expected in a state that lost more than 103,000 jobs between March 2008 and December 2009. Jobs increased slightly in first-quarter 2010, but only to 1997 levels. Employment is forecast to continue rising, but not approach pre-recession 2008 levels until the end of 2014.

Unemployment is expected to peak at 9.4 percent later this year. Fairfield University economist Edward Deak said the impact of restructuring in the U.S. financial services industry has been less severe than expected in Connecticut, but could still undermine recovery.

Sluggish revenue from income, sales and property taxes will continue to strain state and municipal budgets, with more cuts expected and the state facing a $4 billion annual structural deficit from 2012-2014.

Maine: The outlook has brightened with four consecutive quarters of overall economic growth and three solid months of employment gains, said Charles Colgan, professor of public policy and management at University of Southern Maine.

First-quarter 2010 job growth came two quarters earlier than forecast. But Maine is not expected to recover the 30,000 jobs it lost during the recession until early 2013. Drying up of federal stimulus funds is also expected to dampen employment growth during the second half of 2010. Colgan noted Maine’s economy is heavily dependent on small and medium-sized businesses.

Only 12 percent of the workforce is employed by companies with more than 500 workers. Maine companies with 50-99 employees fared much better in the recession than the U.S. as a whole, but companies with between 100-249 workers fared worse.

Massachusetts: The Bay State is “firmly on track” to recovery after a recession that was shorter and milder than the U.S. as a whole, said Northeastern University economist Alan Clayton-Matthews.

Employment shrank 5 percent during the recession, compared with 6 percent nationally. Strong first-quarter employment growth is expected to continue in the second and third quarters of 2010, accelerating to a 2 percent annual growth rate in 2012 and reaching pre-recession levels by mid-2013. Personal income is expected to rise 2.9 percent this year. In 2012, that figure is forecast to rise to 6.3 percent.

A potential concern: an aging population and retiring baby boomers could weaken employment growth toward the end of 2013.

New Hampshire: The state appears to be recovering from the recession sooner than most other states in the region or nation. Employment declined 4.5 percent at the recession’s height, but by March 2010 losses were only 3 percent, according to Dennis Delay of the New Hampshire Center for Public Policy Studies.

New Hampshire lost a greater percentage of high technology and other manufacturing jobs to China than any other state in recent years, but other sectors, including defense-related manufacturing, have done better. Population growth slowed during the recession, but the Census Bureau estimates the state’s population is larger than neighboring Maine’s for the first time since the early 19th century.

Delay notes New Hampshire’s challenges include record-high foreclosures and a $100 million state budget shortfall that could grow to $300 million within the next two years.

Rhode Island: The nation’s smallest state geographically suffered some of the greatest economic pain over the last two years. Rhode Island is beginning to crawl out of the recession, but slow progress is expected. The state lost 40,000 jobs between 2006 and 2010, about 10 percent of total employment. It also has a 20 percent underemployment rate, consisting of people working fewer hours or receiving fewer benefits than in the past, according to forecasters Edward Mazze of University of Rhode Island and Edinaldo Tebaldi of Bryant University.

Rhode Island gained about 600 jobs in first-quarter 2010 and its gross domestic product is expected to increase nearly 5 percent this year.

The forecasters warn that small businesses, a key economic driver, could continue to suffer because of a hostile business environment, including a non-competitive tax structure and onerous regulations. Mazze and Tebaldi said removing such barriers could spur job growth.

Vermont: Forecasters see a “restrained and uneven paced” recovery in Vermont, which lost 13,800 jobs from the start of the recession but appeared to begin its turnaround sooner than the U.S. economy as a whole. Zachary Sears and Jeffrey Carr of Economic & Policy Resources, Inc., said they expect Vermont’s relative job recovery to lag slightly behind the U.S. over the next five years, but outpace most other New England states from 2012-2014.

The forecasters said Vermont should maintain one of the lowest unemployment rates in the six-state region. Real personal income was forecast to be flat in 2010, but trend upward next year.

Vermont saw the smallest decline in housing prices of any state during the recession, but the forecasters said a full housing market recovery remains “a long way out into the future and represents one of the forecast’s most significant risks.”

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