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

Highest Unemployment Rate in 26 years (December 1983) February 2009: 8.1%

Loss in Employment (December 2007-December 2008) Change in Employment Percentage Change Construction-632, % Manufacturing-791, % Retail Trade-522, % Financial Services-148, % Temp Services-490, %

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

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

The Massachusetts Challenge People and Jobs

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. Population Trends

U.S. Bureau of the Census

Population Trends in New England

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

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

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

Housing Cost – Top 10 MSAs Honolulu, HI San Francisco-Oakland-Fremont, CA Santa Cruz-Watsonville, CA Oxnard-Thousand Oaks-Ventura, CA San Diego-Carlsbad-San Marcos, CA Boston-Cambridge-Quincy, MA-NH Santa Barbara-Santa Maria-Goleta, CA Washington-Arlington-Alexandria, DC-VA-MD-WV New York-Northern New Jersey-Long Island, NY-NJ-PA Los Angeles-Long Beach-Santa Ana, CA

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

The Mass Employment Situation

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

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

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

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

Greater Boston MSA –2.0% X

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

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

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

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

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

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

But there’s hope on the way …

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

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

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