Hours after the Massachusetts House approved an annual budget calling for modest spending increases, federal officials reported Thursday that U.S. gross domestic product barely rose in the first quarter, sharply declining from growth rates over the last two years, but local officials said state economic growth picked up.
The U.S. Commerce Department cautioned that its "advance" estimate of 0.5 percent first quarter GDP growth was based on data that was incomplete or subject to further revision, and said an estimate based on more complete data will be released May 27.
"The increase in real GDP in the first quarter reflected positive contributions from personal consumption expenditures, residential fixed investment, and state and local government spending that were partly offset by negative contributions from nonresidential fixed investment, private inventory investment, exports, and federal government spending," the department reported.
Locally, MassBenchmarks, a quarterly economic journal published by the UMass Donahue Institute with the Federal Reserve Bank of Boston, said real GDP in Massachusetts grew at an annualized rate of 2.3 percent in the first quarter, up from a revised fourth quarter annualized rate of 1.4 percent. The state economy grew at annualized rates of 2 percent in the third quarter of 2015, 4.9 percent in the second quarter of 2015, and 2 percent in the first quarter of 2015.
According to the economic journal, employment and earnings showed "strong growth" in Massachusetts during the first quarter. The jobless rate fell, payroll employment rose at a 2 percent annual rate, and wage and salary income expanded by 5.6 percent after falling 7 percent in the final three months of 2015.
MassBenchmarks officials flagged a few concerns, including a tightening labor market, a 6.3 percent first quarter decline in spending on items subject to the sales tax, and weaker bonus payouts in February that officials linked to stock market performance and corporate profit data that may have dampened business confidence and investment.
Looking ahead, MassBenchmarks, citing its leading index, predicted a 3.1 percent growth rate for the state economy in the second quarter and a 2.5 percent rate in the third quarter.
Gov. Charlie Baker and the Massachusetts House have recommended increasing state spending in fiscal 2017 by about 3.5 percent, a rate lower than the state's expected increase in revenues. State officials next week plan to release April tax collection data. Baker administration officials are counting on rebounding revenues to fill a gap in the fiscal 2016 state budget identified earlier this year.
Unlike Baker and House leaders, state Senate leaders are poised to consider levying new or higher taxes. The Senate plans to release its fiscal 2017 budget proposal in May, although its revenue options are limited because the House budget does not feature new taxes.
The House and Senate plan to meet in a Constitutional Convention next month where they will tackle a proposed surtax on incomes above $1 million. State revenue officials estimate the proposed "millionaire's tax" could generate $1.9 billion in new state tax revenues. The proposal needs two affirmative votes in the Legislature in order to reach the statewide ballot for a potential binding vote in 2018.