A labor shortage still limits a healthy mass economy

The Federal Reserve Bank said business activity in New England “expanded modestly on balance as real estate markets lagged other sectors. [regional] Economy.” Pictured is the Federal Reserve Building in Washington. (Photo by SAUL LOEB/AFP via Getty Images)

The Massachusetts economy continues to bring about the motor vehicle, putting the prospect of an imminent recession in the rearview mirror.

That’s the view of state and local analysts, who agree that the business climate continues to be bright.

This derails earlier thinking that continued rate hikes by the Federal Reserve would lead to economic downturns.

Despite high interest rates, the Massachusetts economy grew at a 4% annualized rate in the second quarter, while the state’s unemployment rate is at a historically low 2.5%.

Economists with MassBenchmarks, an economic and public-policy research group published by the University of Massachusetts Amherst’s Donahue Institute in partnership with the Federal Reserve Bank of Boston, said last week that real GDP growth in Massachusetts is outpacing the rest of the country. Economic improvements here are „broad-based” and the Bay State has „become a leading state in net job growth.”

„Despite inflation, slowing economic growth in China, the war in Ukraine, and the lingering effects of the pandemic on manufacturing and supply chains, there has been an unexpectedly strong rebound in state and U.S. economic growth.

„By late 2023, GDP growth is expected to slow, and may be on a softer downward trend rather than an economic recession,” the group said in its authors’ summary of the discussion.

That’s the assessment of the Associated Industries of Massachusetts, and the latest results from its monthly Business Confidence Index survey on Monday suggest more.

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The 0-to-100 scale fell 0.1% to 52.4 in August, AIM said, down 0.3% from a year earlier. But AIM said in its survey responses that „employers remain somewhat optimistic amid a resilient economy that continues to defy forecasts of a recession”.

An advertising executive told AIM, „As a sales manager, I have a good insight into most of the businesses in our region and feel that most continue to be positive … particularly in the manufacturing, home improvement and health sectors where there is a need for recruitment. Product shortages are no longer a priority. Not a debate.

In its September page of data from banking and business communications, the Federal Reserve said business activity in New England „expanded modestly on balance as real estate markets continued to lag other sectors.” [regional] economy.”

Commentary from the central bank’s communications supported the sentiment that the economy is not as bad as many expected and the future looks a bit brighter.

and „[g]”With overwhelmingly positive data for Massachusetts and a diminishing likelihood of an outright recession,” MassBenchmarks said, analysts are wondering what else Massachusetts can do to address some of the persistent problems plaguing the economy.

That key issue continues a theme that has persisted since the easing of pandemic restrictions — a shortage of skilled workers.

„AIM members are still struggling with workforce shortages and we know there are challenges in hiring qualified candidates. One of the simplest ways to address this problem is to provide immediate tax incentives to retain workers in Massachusetts – including increased home production – and avoid further draining our talent pool,” said AIM CEO. John Reagan said.

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A recent survey of employers by the National Federation of Independent Business found that 40% of small business owners in Massachusetts could not fill job openings, while 36% raised wages to put workers back into the workforce.

The survey found that at least 93% of owners are hiring or trying to hire or have no qualified applicants for open positions.

The report notes that about 35% of business owners have openings for skilled workers and 18% have openings for unskilled workers.

„It’s a competitive job market right now, and in order to hire and retain qualified workers, many small businesses are raising wages or plan to do so in the next few months,” said Chris Carlozzi, NFIB’s Massachusetts state director.

Business leaders say there are complex reasons behind the labor shortage. Some workers have left the labor force permanently, while others move between positions to get better pay, benefits, and other hiring perks.

The Mass Benchmarks Board said making investments that can grow the state’s workforce is a unifying theme among its members and can serve as „a rallying point that can guide state policy.”

„For example, more affordable housing and child care, free community colleges and improving our aging transportation infrastructure will help make Massachusetts a more attractive place to live and work,” MassBenchmarks said.

While the state’s unemployment rate suggests near full statistical employment, wage inflation will continue despite the central bank’s best efforts to moderate it.

Quality of life issues — most notably the lack of affordable housing — can hamper employers’ efforts to fill job openings, especially for younger, more mobile workers.

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