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The performance of the Massachusetts economy during the last quarter of 2023 was “noticeably weaker” than the national economy, according to a report released Wednesday morning.
“This weakness was broad based, and can be seen in employment, wage and salary income, and goods spending, all of which were weaker in the state than in the nation in Q4,” authors of MassBenchmarks Journal wrote.
Real gross state product in Massachusetts increased at an annual rate of 1.2 percent in the fourth quarter of 2023, while U.S. GDP increased at a 3.3 percent annual rate during that stretch, according to the U.S. Bureau of Economic Analysis.
The weakening is being felt on Beacon Hill where revenues that drove spending increases are drying up. After another down month in January, tax receipts seven months into fiscal 2024 are down 1 percent compared to the same period of fiscal 2023.
Analysts tied slower economic growth to some familiar topics: labor force limits, heightened sensitivity to higher interest rates, and housing supply constraints that are exacerbating affordability challenges and likely causing some people to leave the state.
Wage and salary income in Massachusetts in the fourth quarter declined at an annual rate of 9.6 percent from the third quarter, while nationally wage and salary income grew at a 4.6 percent annual rate.
“The decline in Massachusetts was likely due to a much weaker than usual bonus season,” said Alan Clayton-Matthews, senior contributing editor at MassBenchmarks, which is published by the University of Massachusetts Donahue Institute in cooperation with the Federal Reserve Bank of Boston.
Massachusetts is more sensitive to higher interest rates in technology and related services that rely on venture capital funding and business spending, according to the report, which included a warning about associated impacts on tax collections.
A forecast prepared in December by Clayton-Matthews, a Northeastern University economics professor emeritus, estimated that higher real interest rates would lower fiscal 2024 state tax revenues by about $500 million in the last eight months of the fiscal year, and by $1.3 billion in fiscal 2025.
“Higher interest rates appear to be taking their toll on the Massachusetts economy, arguably to a greater degree than nationally, at least for now,” Wednesday’s report said.
MassBenchmarks also cited “growing evidence that the labor market is weakening in Massachusetts,” and reported that first-time unemployment insurance payments in Massachusetts appear to be rising and were 15 percent higher in the second half of 2023 than in the first, on a seasonally adjusted basis.
MassBenchmarks analysts said that continued slow growth in the Massachusetts economy was likely in the first half of 2024, tying that expectation to a belief that the Federal Reserve is expected to begin to cut interest rates in the spring.
