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BHI: Massachusetts Tax Revenue Forecasts for FY 2017 and FY 2018 / September 12, 2016 Page 1 of 10
https://www.oecd.org/eco/outlook/economicoutlookannextables.htm. The 3.5% GDP benchmark is based on the
years 1990‐2001. 5 BLS, http://www.bls.gov/news.release/pdf/prod2.pdf 6 Wall Street Journal Economic Forecasting Survey (August 2016
http://online.wsj.com/public/resources/documents/wsjecon0816.xls. 7 The Economist poll of forecasters, April 2016 averages (April 6, 2016). http://www.economist.com/news/economic‐
and‐financial‐indicators/21696577‐economist‐poll‐forecasters‐april‐averages. See also
http://www.economist.com/indicators 8 http://www.suffolk.edu/documents/SUPRC/9_6_2016_marginals_part_2.pd 9 Conference Board The Conference Board Consumer Confidence Index Improved in August (August 30, 2016) https://www.conference-board.org/data/consumerconfidence.cfm 10 Trading Economics http://www.tradingeconomics.com/stocks (accessed September 8, 2016)
BHI: Massachusetts Tax Revenue Forecasts for FY 2017 and FY 2018 / September 12, 2016 Page 3 of 10
from 292,000 but revised July 2016 figures upward to 275,000 from 255,000. The Labor Force
Participation (LFP) rate remained to 62.8%. The employment‐population rate remained unchanged at
59.7%. Labor force participation remains lower than historical average. Not all of the decline in labor
force participation rate can be attributed to changing demographics. Other facts are coming into play
such as an increase in disability payments and other safety‐net benefits, along with choices by single
women to remain in school.
The number of persons employed part‐time increased by 6.1 million in August. This is critical since it
represents the number of individuals who would like to work full time but have been unable to do so.
There were 576,000 discouraged workers in August, essentially unchanged from a year ago. The
number of persons considered long‐term unemployed (27 weeks or more) declined to 2.09 million,
Average hourly earnings for all employees have risen by 2.4% since August 2015 while the average
workweek declined to 34.3 hours.
Worker confidence in the ability to find a better paying job is a strong indicator. The quit rate has
shown steady improvement over the past several years. In addition, firms struggle to find workers
with the right skills for newly created jobs.
With four straight quarters of decline, lagging productivity is now a long‐standing concern and one of
the major worries standing in the way of higher interest rates from the Federal Reserve.11 According to
the Wall Street Journal, “The slowdown in recent quarters has likely been reinforced by weak business
investment in new equipment, software and facilities that could help boost worker efficiency.”12
Economists emphasize increased output per worker hour as the key to stronger economic growth.
These gains are made possible when workers apply materials, skills and experience in the most
efficient manner without incurring inflation
Figure 1
11 Ben Leubsdorf, “Productivity Slump Threatens Economy’s Long-Term Growth,” Wall Street Journal, August 9, 2016, http://www.wsj.com/articles/u-s-productivity-dropped-at-0-5-pace-in-the-second-quarter-1470746092. 12 Ibid.
‐2.0
‐1.0
0.0
1.0
2.0
3.0
4.0
5.0
Labor Productivity (output per hour)% change from previous quarter at annual rate
Source: Bureau of Labor Statistics
BHI: Massachusetts Tax Revenue Forecasts for FY 2017 and FY 2018 / September 12, 2016 Page 4 of 10
The slowdown in worker productivity may signal a new normalcy despite the availability of high
technology. Historically significant productivity gains are rare and there is some doubt whether the
new technology has really added anything to growth over the long term.
The Massachusetts Economy
Seven years after the end of the Great Recession, the Massachusetts economy is among the strongest in
the nation. Since last July, the state has added 65,500 jobs. The decision by General Electric earlier this
year to move its headquarters to Boston reflects the strength of the technology and educational sectors.
The vibrancy of the state’s life sciences sector underpins the reputation of its highly‐skilled base of
human capital. As with the nation, Massachusetts consumers enjoy lower gas prices low inflation and
improved job opportunities. In its fall 2015 forecast, the New England Economic Partnership (NEEP)
The state’s economy comprises 2.7 % of the entire U.S economy. A more recent BEA estimate —subject
to revision —puts growth at 1.6% in the first quarter of 2016. That comes after a 2.0% increase for all of
2015. The first quarter of 2016 number puts the state 22th in the nation, well behind first‐place Arkansas
which saw 3.9% growth.14 The size of Massachusetts’s economy, measured by nominal GDP State, is
more than $485.5 billion.15
The Massachusetts unemployment rate dropped to 4.1% in July 2016 according to the Executive Office
of Labor and Workforce Development (LWD).16 The state’s unemployment rate is below the national
April rate of 4.9%. The state economy added 7,300 jobs in July.17 The state’s LFP rate remains above the
national rate, at 65%. The latest figures (See Table 1) show year‐over‐year employment gains for
professional, scientific and business services; leisure and hospitality; trade, transportation and utilities;
and finance. Only manufacturing and other services lost jobs since last year. The state’s labor force
stands at 3.6 million. At the local level, the BLS found that the unemployment rate dropped to 3.1% for
the city of Cambridge in June.18 The Western part of the state continues to lag. The city of Springfield
saw an unemployment rate of 8.1% in June 2016, the month for which the latest summary data are
available.19
According to a June Manpower Employment Outlook Survey, employers in Massachusetts expect to
“hire at a positive pace” during Quarter 3, 2016.20 The report predicted that, of the surveyed
13 New England Economic Partnership, Fall 2015, “Economic Outlook,” http://www.neepecon.org. (Data file) 14 BEA, Gross Domestic Product by State: First Quarter 2016 (August 26, 2016), 15 BEA, http://tinyurl.com/knep34d. 16 Labor and Workforce Development, “Unemployment Rate Drops to 4.1 Percent in July (August 18, 2016) http://lmi2.detma.org/Lmi/News_release_state.asp. 17 Labor and Workforce Development, “Quick Stats,” (April 2016), http://lmi2.detma.org/lmi/Quick_StatsCES.asp 18 BLS Economic Summary Boston‐MA‐NH Metro Area (August 3, 2016 update),
http://www.bls.gov/regions/new‐england/summary/blssummary_boston.pdf. 19 See Labor Force and Unemployment Data at http://lmi2.detma.org/lmi/lmi_lur_a.asp#3 and Springfield, MA‐
CT, Area Economic Summary (April 6, 2016), http://www.bls.gov/regions/new‐
england/summary/blssummary_springfield_ma.pdf 16 ManpowerGroup, “Solid Job Market Expected for Massachusetts,ʺ June 14, 2016, http://press.manpower.com/q3/2016/solid‐job‐market‐expected‐for‐massachusetts‐2//.
BHI: Massachusetts Tax Revenue Forecasts for FY 2017 and FY 2018 / September 12, 2016 Page 5 of 10
employers, 22% would hire more employees, while 5% would reduce their payrolls. For 71%, there was
an indication that they would not reduce employment, a positive sign given the state’s tight labor
market. The report said that the prospects for employment are strong across all sectors, except for
financial services.
The Federal Reserve Bank’s September 2016 Beige Book describes the current outlook for the region
cautiously saying that “Economic activity continues to increase in the First District, although there are
scattered signs of slowing growth rates.”21 Examining the residential real estate market, the Boston Fed
noted that July represents the first year‐over‐year decrease in 14 months after a year that included
several records highs for Massachusetts. The reported called office leasing activity steady and healthy
in greater Boston, where office rents are up slightly in recent weeks. The Fed also said manufacturing
firms in the New England region remains consistent and “that growth is at a pace typical of recent
years.”
Table 1
Super Sector Jul‐16 Jun‐16 Jul‐15
Net Change Prior Month
Net Change 1 year ago
% Change Prior month
% Change Year Ago
MINING, LOGGING AND CONSTRUCTION 151,100 150,500 139,600 600 11,500 0.4 8.2
BHI: Massachusetts Tax Revenue Forecasts for FY 2017 and FY 2018 / September 12, 2016 Page 6 of 10
ranking in terms of venture capital per capita and ranks eighth in Initial Public Offering dollars per
capita.22
Data collected by BHI from NASDAQ show that Massachusetts firms issued $1.58 billion in IPOs,
roughly 5% of all the nearly $30 billion in the U.S. for 2015.
Whether Massachusetts is a destination for corporate headquarters (as is the case for General Electric)
or an outpost for large out‐of‐state firms is an emerging narrative. On September 7, native mainstay
EMC was unlisted from the New York Stock Exchange as it merged with computer supergiant Dell. 23
Plans to maintain or consolidate the Massachusetts‐born data storage company’s work force could
translate into Bay State job cuts over the long term.
22 22 Beacon Hill Institute at Suffolk University, State Competitiveness Report (15), (July 29, 2016).
http://www.beaconhill.org/Compete15/Compete2015.pdf 23 Sara Castellanos, “Report: Dell Technologies to cut up to 3,000 jobs after EMC buyout,” Boston Business Journal, September 8, 2016. http://tinyurl.com/zonjfua.
BHI: Massachusetts Tax Revenue Forecasts for FY 2017 and FY 2018 / September 12, 2016 Page 7 of 10
Methodology
Table 2
Economic Forecasts for Massachusetts, 2017 through 2018
Actual Actual Actual Forecast Forecast Forecast
Massachusetts (calendar year end)1 2013 2014 2015 2016 2017 2018
Gross State Product 415 425 440 454 463 470
% change p.a. 1.1 2.3 3.5 3.1 2.2 1.5
Personal income ($ billion) 383 400 422 447 470 488
AR refers to Autoregressive lags used in the regression. MA refers to Moving Average lags used in the regression. “Dummies” gives starting dates of each Dummy variable used (e.g. 01:1 is a dummy that
is set equal to 1 from January 2001 onwards and to 0 otherwise). “Dates” refers to period of data used in regression estimates.” (PIEST)‐12 refers to the income tax estimated payments data lagged by 12
month. PI refers to Personal Income and C, a Constant variable. We directly incorporated into our estimates the cigarette and motor fuels tax increases.
BHI: Massachusetts Tax Revenue Forecasts for FY 2017 and FY 2018 / September 12, 2016 Page 10 of 10