Higher worker bonuses and a strong technology sector helped the Massachusetts economy grow faster than the nation for the first three months of the year, but experts warned that federal budget cuts and the payroll tax increase are already taking a toll on the commonwealth.
"What the policy is doing is slowing the pace of our growth," said Michael Goodman, a public policy professor at the University of Massachusetts Dartmouth. "It's like driving around with the emergency brake on. You're still moving forward, but not as fast as you would like."
Massachusetts' real gross state product grew at a rate of 3.9 percent in the first quarter, outpacing the nation's 2.5 percent growth rate.
In a MassBenchmarks report issued yesterday, experts said the state's solid economic growth from January to March was likely caused by "sizable" bonus payments made to workers in the financial and professional services sectors.
However, the state's professional, scientific and business services sector took a big hit last month with the loss of 3,400 jobs even as the unemployment rate dropped down to 6.4 percent. March marked the beginning of federal automatic spending cuts.
The state grew at an annual rate of 2.4 percent during the fourth quarter of last year while the United States posted a paltry 0.4 percent growth rate.
Federal budget cuts are already starting to slow the commonwealth's leading industries, including health care, higher education and research and development, experts said.
"The national and state economies are being strongly influenced by two opposing forces. On the one hand, growth in consumer demand is being supported by rising home prices, stock markets and job expansion," said Northeastern University economist Alan Clayton-Matthews, senior contributing editor of MassBenchmarks. "On the other hand, fiscal drag in the form of the payroll tax increase and federal budget cuts are slowing the economy. This fiscal drag could dampen growth by as much as 1.5 to 2 percentage points this year. And the continuing recession in Europe and an apparent slowdown in China are not helping matters."
Demand for the state's technology resources — information technology and medical devices — continues to give Massachusetts a growth edge over the nation, said Robert Nakosteen, an economics professor at the University of Massachusetts Amherst's Isenberg School of Management. However, the sector will "take a bit of a hit" as the year progresses because it is largely supported by government spending and contracts, he added.
"The state can't sustain this high rate of growth," Nakosteen said. "We're not in danger of a renewed recession, but the growth we've seen in the last quarter is not going to be sustained."
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