http://www.boston.com/news/daily/30/ne_economy.htm

Forecasters see sharp dip, then slow growth for New England economy Mass. unemployment will hit 5.4 percent next year, experts say

By Justine Pope, Associated Press, 10/30/01

WESTBORO -- New England's economy is almost certainly in recession, and when growth returns no earlier than mid-2002 the region will have to learn to live with slower economic progress than it enjoyed during the 1990s, economists said Tuesday.

The biennial state-by-state regional forecasts by the New England Economic Project, a nonprofit economic forecasting firm, were shrouded in a thicker-than-usual fog, the forecasters said, due to uncertainty from the Sept. 11 attacks.

They painted a gloomy picture of a tech-heavy region waiting out the slump in business spending and worried about the effects of the war on terrorism.

Still, the economists said, the region's fundamentals -- the comparative health of its banks and real estate market, and its high-skilled workforce -- make a repeat of the "Great Recession" of a decade ago unlikely.

Among the New England states, New Hampshire is expected to emerge first and most forcefully, with Maine and Rhode Island lagging behind the average. Overall regional growth is expected settle at about 2 percent after a jump to 5 percent in 2003. Unlike during the 1990s, growth in New England is expected to trail that of the nation as a whole.

"The theme is we are in a recession," said Alan Clayton-Matthews, NEEP's president and University of Massachusetts-Boston public policy professor. "The recession preceded the terrorist attacks. We would have been in recession anyway because of the collapse in business spending."

Among the predictions for individual states:

Massachusetts' economy should grow 1 percent this year and shrink 1 percent next, said Robert Nakosteen of the University of Massachusetts at Amherst. The unemployment rate in the state, now about 4 percent, should hit 5.4 percent by the third quarter next year.

A boost in defense and health spending could help, and things are far better than a decade ago. "What we're seeing in this recession is not a structural downturn but a cyclical one," he said.

Connecticut is vulnerable to job losses and reduced profits on Wall Street, said forecaster Edward Deak, economics professor at Fairfield University. Unemployment will peak at 5.6 percent in the second quarter of next year and settle to about 4 percent.

In the short-term, Hartford's insurance industry will pay heavily for the Sept. 11 terrorist attacks, but should thrive long-term. "They're raising rates on everything," Deak said. "The insurance industry has pricing power it hasn't seen for 20 years and they're taking advantage."

Meanwhile, the state's two casinos are thriving as travelers stick close to home, but could suffer if competition opens in New York state.

New Hampshire should continue to outpace the region but will keep suffering from the tech downturn, said forecaster Dennis Delay of the Public Service Company of New Hampshire. Growth in gross state product, which averaged 8.1 percent between 1995-2000, will slip to 2.6 percent in 2000-2005. But that's still .4 percent above the region and .1 percent above the national average.

Housing prices have jumped considerably, but they have been matched by income growth, Delay said, so a bubble seems unlikely. "The floor under the real estate market is higher than it was the last time around," Delay said.

Vermont should expect full recovery by 2004, said Jeffrey Carr, economist and vice president at Economic and Policy Resources, Inc. "It's going to be longer and deeper than I think the national outlook is going to be," he said.

Carr doesn't buy the argument that Vermont has a countercyclical tourism industry that could benefit from New Englanders who decide to stay close to home. "Our travel and tourism sector always does better when the economy is doing well," he said.

Maine "never really came to the party in the first place," said economist Charles Colgan of the University of Southern Maine. "It's not going to feel as bad when we're shut out." A slow economic climb should begin in the third quarter of next year. Job losses won't be too harsh because the number of workers in the state is not increasing.

Maine's paper industry, which supplies newspapers and magazines, is already suffering from a sharp slump in advertising. A mill in Millinocket has already closed for two weeks to fill orders.

Rhode Island, perhaps hardest hit by unemployment in the last recession, could see unemployment peak at 6.5 percent in 2003. Personal income growth, an 11-year best 7 percent last year, will slow to 4.4 percent this year and 2.5 percent next.

Each of the forecasters took pains to point out that the war on terrorism makes predictions -- tricky matters in the best of times -- vulnerable to even bigger swings.

-- Anonymous, October 30, 2001