In the fourth quarter of 2020, Massachusetts real gross domestic product (GDP) increased, according to the UMass Amherst Donahue Institute MassBenchmarks reports that US GDP rose 4% according to the US Bureau of Economic Analysis (BEA). In the third quarter, both the fastest-growing nation and state expanded in history, with Massachusetts GDP growing at a rate of 33.1% and US GDP growing at a rate of 33.4%.
The sharp slowdown in the pace of growth from the third quarter onwards was expected and reflects a transition from the phase of very strong growth that saw the reopening of much of the economy in the summer and more recently slowed to a more subdued pace as winter approached and the COVID-19 virus returned with a vengeance. Another factor limiting growth in the fourth quarter was the decline in incomes, including unemployment benefits, coupled with the weakening impact of the CARES law and related stimulus programs. The quarter ended with government economic growth stalling in December amid a virulent resurgence of COVID cases. The number of employees declined in December at both national and state levels, while unemployment rose in Massachusetts and remained stable nationwide.
In the fourth quarter of 2020, the Massachusetts economy outperformed the US in terms of GDP, employment, and wage growth.
The number of employees in Massachusetts grew by 7.8% pa in the fourth quarter compared to 5.2% in the US and 23.0% nationwide. In this regard, Massachusetts played “catching up” with the US as the spring shutdown became more widespread and widened. Employment in Massachusetts remained 9.2% below employment levels in the fourth quarter of 2019, while employment in the U.S. was 6.0% below the level of the fourth quarter of 2019.
Massachusetts wage growth was very strong in the fourth quarter, at an annual rate of 26.1%. This estimate is based on state withholding taxes and excludes withholding taxes from unemployment insurance. Nationwide, wages and salaries rose 8.9% per year in the fourth quarter. Massachusetts’ strong performance could in part reflect a good bonus season. The S&P share index ended 2020 with a plus of 16.3% compared to the previous year.
Wages and salaries in the fourth quarter outperformed fourth quarter 2019 by 2.2% in Massachusetts and 2% in the US “The stark contrast between the return of wages and salaries to pre-pandemic levels and the lack of a corresponding return on employment The pre-pandemic level reflects the inequality of the economic impact of the pandemic on different industrial sectors and workers, ”noted Alan Clayton-Matthews, Senior Editor of MassBenchmarks and Professor Emeritus of Economics and Public Policy at Northeastern University, who analyzes the current and future leading indices. “Low-wage sectors such as leisure and hospitality and personal services have been hardest hit by the shutdown and remain the sectors with the slowest recovery in employment,” added Clayton-Matthews.
The unemployment rate fell in the fourth quarter, but remains higher in Massachusetts than the US and well above pre-pandemic levels. In December 2020, the unemployment rate in Massachusetts was 7.4%, compared to 6.7% in the U.S. In September 2020, the unemployment rate was 9.8% in Massachusetts and 7.9% in the U.S. In December 2019, it was 2 , 8% in Massachusetts and 3.5 and% in the US
The labor market is weaker than the unemployment rate suggests, as people who leave work because they cannot find work or have to stay at home are not counted as unemployed in the overall unemployment rate. The Massachusetts labor force in December was 175,800 below December 2019 levels, reflecting a 3.4 percentage point decrease in labor force participation. Labor force participation in the US fell 1.7 percentage points over the same period.
The labor market impact of the pandemic in Massachusetts was more severe for women than men. According to the latest Massachusetts Population Survey, between December 2019 and December 2020, the number of unemployed women rose 64 percent more than that of men, and the decline in both the number of employed and the labor force was approximately twice as much for women Men.
The U-6 unemployment rate – which includes part-time workers who want full-time employment and people who are looking for work but haven’t looked for work in the last four weeks – was 11.3% in Massachusetts and the US in December at 11.7% US These rates are lower than they were at the end of the third quarter when they were 14.3% in Massachusetts and 12.8% nationally. In December 2019, they were 6.2% in Massachusetts and 6.7% in the US
Consumer spending in Massachusetts remained strong in the fourth quarter. State regular and vehicle sales tax estimates show that spending on these taxable items increased 6.8% on an annualized basis in the fourth quarter. In the third quarter, that spending increased at an annualized rate of 85.6%. Year-on-year, these expenditures increased 6.4%. The recovery in goods spending above pre-pandemic levels is consistent with robust wage and salary growth, the wealth effect associated with developments in the stock market, and the benefits of income support from government stimulus programs. At the same time, state tax revenues on meals suggest a significant slowdown in restaurant spending year on year, driven by the closure of pandemics and consumer safety concerns.
The slowdown in growth towards the end of the fourth quarter is expected to continue into the first quarter of 2021 as COVID case numbers are expected to remain high, cold weather restricts safer outdoor activities, and the removal of business restrictions is delaying or slowing down more than previously hoped. The federal incentives passed in late December will help offset some of that slowdown in the first quarter. The expected cumulative increase in the vaccinated population in winter and spring should allow the economy to reopen gradually and steadily. For these reasons, the average estimate of US GDP growth for the first and second quarters of this year from the Wall Street Journal’s survey of economists is 2.2% in the first quarter and 4.9% in the second quarter. The outlook for Massachusetts is similar, assuming a steady surge in vaccinations and an associated decrease in the prevalence and impact of the ongoing COVID-19 pandemic.
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