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Whither the U.S. and Massachusetts Economy?

Whither the U.S. and Massachusetts Economy?. John LaWare Forum March 24, 2009 Federal Reserve Bank of Boston Barry Bluestone Dean, School of Social Science, Urban Affairs, and Public Policy. The U.S. Economy. Personal Savings Rates Plummeting. Federal Debt nearly double since 2000.

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Whither the U.S. and Massachusetts Economy?

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  1. Whither the U.S. and Massachusetts Economy? John LaWare Forum March 24, 2009 Federal Reserve Bank of Boston Barry Bluestone Dean, School of Social Science, Urban Affairs, and Public Policy

  2. The U.S. Economy

  3. Personal Savings Rates Plummeting

  4. Federal Debt nearly double since 2000

  5. February 2009: 8.1% Highest Unemployment Rate in 26 years (December 1983) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2009

  6. Loss in Employment (December 2007-December 2008)

  7. 14.8% 8.7% Involuntary Part-time Discouraged Official Unemployment Rate

  8. U.S. Economy • The fundamentals of the U.S. economy began to deteriorate years ago • The credit market collapse has had such devastating consequences because the economic fundamentals were not sound • We are now seeing the result in a hard credit freeze, sharply declining GDP, and soaring unemployment

  9. The Massachusetts Challenge People and Jobs

  10. Population Trends • Between 2000 and 2007, the population of Massachusetts increased by less than 87,000 (1.4%) – the second slowest increase in New England (after Rhode Island) … and 1/5 the rate in the U.S. • Much of this is due to a very low birth rate … but • Since 2000, Massachusetts has suffered a net domestic out-migration of over 305,000 residents. • This outflow of people has been softened only somewhat by the arrival of 206,000 foreign immigrants.

  11. U.S. Bureau of the Census

  12. PopulationTrends in New England

  13. Immigration & Net Domestic Migration: Massachusetts Massachusetts Domestic Net-Migration and Foreign Immigration

  14. Who’s Leaving Massachusetts? Percent Change in Population by Age Cohort, Massachusetts v. U.S., 2000-2006

  15. Of the 10 most expensive MSAs in the nation, All 10 had net outmigration between 2000 & 2006 Greater Boston MSA –6.0% X

  16. Housing Cost – Top 10 MSAs

  17. The Future Demographics of Massachusetts Projected Percent Change in Households by Age Cohort, 2006-2017 Of a net increase of 193,500 households, 244,600 are projected to be age 55 + Source: U.S. Census Demographic Projections

  18. The Mass Employment Situation

  19. Total Unemployment – Massachusetts January 1999-January 2009 Unemployment increased by 96,000 Between January 2008 and January 2009 December 2007-December 2008 Employment Change: -74,000

  20. Massachusetts Unemployment Rate January 1999 – January 2009 Unemployment rate increased from 4.6% to 7.4% between January 2008 and January 2009

  21. Massachusetts Change in Total Non-Farm Employment (Seasonally Adjusted) (January 2001 - December 2007)

  22. Massachusetts Change in Total Non-Farm Employment (Seasonally Adjusted) (December 2007 - December 2008)

  23. Greater Boston MSA –2.0% X

  24. But some good economic news • Despite endowment problems, our universities and hospitals continue to expand, providing a strong base to the economy • Our manufacturing sector has turned the corner … increasing its share of gross state product and is poised to provide jobs for 100,000 young workers over the next decade

  25. Massachusetts State & Local Government in Trouble Facing a continuing budget crisis

  26. Price of State & Local Services rising twice as fast as overall prices

  27. Debt Service, Public Pensions, and Medicaid will devour most of the Mass State Budget

  28. The Massachusetts Problem • Despite our lead in biotech and nanotech … • Despite our rich array of (once) well-endowed universities and hospitals … • Despite the beauty of Cape Cod, the Berkshires … • Despite our marvelous array of cultural attractions and amenities

  29. The Massachusetts Problem • We are #1 in cost of living in the nation • We suffer from being cold … and getting old • We have a growing structural budget deficit in the Commonwealth that will soon sink our ability to maintain the education system we need, the public social services we morally should supply, and the public infrastructure we must maintain to retain and attract the private investment

  30. But there’s hope on the way …

  31. What Really Needs to be Done? – National Economy • Phase I – Instant Stimulus • “Uncle Sam” Debit Card • Home Price Insurance System • Phase II – Short-term Stimulus • Massive General State and Local Revenue Sharing • Extended Unemployment Benefits • Phase III – Longer-term Stimulus • Public Infrastructure Investment

  32. What’s to be Done? - Massachusetts • Local Option Tax, but with State meals tax and continued redistribution of state aid to older industrial cities • Capital Gains Tax Holding Tank and larger future rainy day fund • Continued investment in education and training • Continued support for Chapter 40R & 40S to assure adequate supply of housing to moderate housing cost appreciation when economy recovers • New “Grand Bargain” with public employee unions

  33. We will get through this because … • We have smart, competent leadership in the White House • We have smart, competent leadership in the State House • We have a broad range of corporations and civic institutions that are willing to pitch in to keep Massachusetts strong and vibrant

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