Economists paint gloomy regional forecast

WESTBORO, Mass. – The New England economic recovery keeps fading further into the future.

And when growth does resume – now expected early next year – there will be little cause for celebration. The region’s economic performance will lag behind the national average through at least 2006.

That’s as far as the eye can see, as far as forecasters at the New England Economic Project are concerned. The group released its twice-yearly, five-year economic forecast at a forum here Tuesday.

Still, recovery in much of the region already has begun, and the aggregate figures mask considerable state-by-state differences.

New Hampshire, for instance, is expected to considerably outpace the region and will be the only New England state growing faster than the national average.

The state’s finances are in decent shape because it doesn’t rely on an income tax. And there have been signs of improvement in the state’s poorer, northern region.

But the regional averages are dragged down by the abysmal performance of Massachusetts, which accounts for half of the region’s economy. The engine of the region’s boom during the 1990s, Massachusetts is now struggling with a huge falloff in state government revenues, and job losses that are now beginning to approach those of the last recession 12 years ago.

By some measure, job losses in the state could soon hit 132,000, or 4 percent of the state’s work force, comparable to the 178,000 lost during the 1990 recession.

“These losses are in the ballpark of being that huge,” said Alan Clayton-Matthews of the University of Massachusetts at Boston, who compiles the state’s forecast.

Between those extremes, Vermont, Connecticut, Rhode Island and Maine seem to be stumbling along, having avoided a severe recession but struggling with their own state budget woes and to generate growth.

After promising signs in the first half of the year, Maine’s economy is essentially stalled. In terms of economic growth and jobs, it’s likely to end 2002 right where it began.

Uncharacteristically, Maine avoided the brunt of the recession but continues to struggle to build momentum for growth, according to University of Southern Maine Prof. Charles Colgan.

A big challenge is a $228.3 million budget deficit, equal to 8.4 percent of appropriations. The state’s tax structure is one of the most top-heavy in the nation, with the top 2 percent of wage-earners paying 33 percent to 35 percent of the income tax. But since wealthy taxpayers suffered the biggest drop-off in earnings during the recession, state finances suffered accordingly.

Maine expects massive turnover in its Legislature due to term limits, which means green legislators will be wrestling with the budget crisis.

The predictions, released twice yearly by NEEP, are far from inevitable. The group acknowledges it consistently underestimated growth rates during the boom years of the 1990s, and in recent forecasts has missed in the other direction.

“The New England economy has experienced a double dip of sorts,” said Ross Gittell, a University of New Hampshire professor and NEEP vice president. “That wasn’t anticipated when we met in the spring.”

But the figures show how the length and depth of the current slowdown has befuddled economists. A year ago, NEEP was expecting growth of 5 percent in 2003 and lowered that to 4.5 percent in last forecast six months ago. Now, it expects the region to grow no faster than 3.5 percent in any quarter during the forecast. Overall, it expects the region to grow at just 2.2 percent annually, compared to 3.1 percent for the country as a whole.

New Hampshire will grow at 3.4 percent over the period, the group predicted, while Massachusetts at just 1.5 percent – a far cry from its peak of 8 percent annualized growth at one point during 2000. Massachusetts is likely still in recession, its gross economic output having shrunk for seven straight quarters.

But Gittell said that while Massachusetts’ woes may bring the regional averages down, they do not necessarily drag down the economy itself. For instance, home prices have jumped sharply in Rhode Island just in the last month as Boston-area commuters look for cheaper places to live.

“Housing prices are increasing, but they’re still under $200,000, which sounds pretty good to people in Boston,” Gittell said. Massachusetts average single-family home prices are approaching $350,000.