Northeastern’s Alan Clayton-Matthews Cites National Uncertainty, Tight Labor Market
WESTBOROUGH, MA – Volatility in the stock market, rising interest rates, high housing prices, and a tight market in skilled labor are challenges that Massachusetts faces going into 2019, Northeastern University’s Alan Clayton-Matthews told members of MassEcon this morning.
“There are a lot of threats to future growth of the business cycle, not to mention what going on in Washington, and one of them is interest rates,” Clayton-Matthews said. He noted that as the Federal Reserve Bank raises interest rates, the difference in the 10-year bond rate and the 3-year rate has narrowed dramatically.
“That’s a sign of perhaps troubling times,” Clayton-Matthews said, because tiny gaps in those rates have preceded recessions historically. Economists in one survey now put the chance of a recession at 20-25 percent in the next 12 months.
Clayton-Matthews is Northeastern University Professor and New England Economic Partnership Forecast Manager. He is also co-editor of Massachusetts Benchmarks, a joint publication of UMass and the Federal Reserve Bank of Boston that presents information and analysis about the performance of the Massachusetts economy.
He spoke at the 2019 kickoff meeting for members of MassEcon at 200 Friberg Pkwy. in Westborough.
Clayton-Matthews predicted that the state’s real product, a measure of the economy, will be shown to have slowed in the fourth quarter of 2018 from earlier in the year, when it was about 2.1 percent. The nation’s will be slightly higher, but the stimulus of the tax cuts from 2017 is wearing off, he said, and Massachusetts continues to be affected by an aging workforce.
On the other hand, “Some parts of the economy are booming,” he said, citing technical, science, and knowledge-based industries. “Those jobs have been expanding at more than twice the rate of the overall payroll for about a decade,” he said. They have grown more than 6 percent since December 2017, “roughly five to six times the rate of overall employment.”
Unemployment in Massachusetts is low — especially for those with college degrees, where it is about 2.5 percent — and “tends to be lower the more highly educated you are,” Clayton-Matthews said. It is falling even for those without high-school degrees and those with only high-school educations.
Unemployment for college-education residents was about 1 percent in 2001, and “2001 was probably the biggest boom year in my lifetime,” he said. “Everyone who wanted a job could have a job.”
The employment rate for Hispanic or nonwhite residents is approaching that of white workers, according to Census figures, he said, though resolving persistent income inequality in the state is a significant challenge.
Clayton-Matthews said the addition of multifamily housing has raised the supply in the state but not enough to make a significant dent in housing prices.
Consumer prices in the Boston area last year started rising faster than those in the nation as a whole. “Massachusetts still has a problem in affordability,” he said.
International migration continues to contribute positively to the Massachusetts workforce, making up for the negative migration rate within the United States, as it has for a long time.
Overall migration increased from 14,800 in 2016 to 27,300 in 2018, he said. And higher-than-average productivity among workers in Massachusetts is largely responsible for its generally healthy economy. “Historically we’ve had a higher rate not just of productivity but of rate of productivity,” he said. “It has tended to be higher than the nation and right now is higher than the nation as a whole.”
Clayton-Matthews said labor force growth is projected to slow to zero by 2030 and population growth itself to 0 by midcentury.
“The rate of population growth has been about half a percent and probably will remain that way for several years,” he said. “The composition of that growth in terms of age is shifting to older. That puts a huge constraint on labor force growth.”
“That means there’s less of an incentive for companies who want employees to move here,” Clayton-Matthews said. “So this is a challenge for Massachusetts.”
“Productivity will be good and growing over the next few years,” he said, which means tax revenues should be strong.
Asked about Amazon’s choice not to come to Boston, Clayton-Matthews said the region could have assimilated the projected 50,000 new jobs over a decade. Historically, “The state has been growing in employment by 50,000 every year.”
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