Massachusetts’ economy slowed significantly in the first quarter of 2022 as another wave of COVID-19, sky-high inflation rates and ongoing supply chain problems combined to slow growth, economic analysts MassBenchmarks said Thursday.
MassBenchmarks, released by the UMass Amherst Donahue Institute in partnership with the Federal Reserve Bank of Boston, said real GDP in Massachusetts fell 1 percent on an annualized basis in the first quarter, compared with a 1.4 percent decline in national GDP Percent. The slowdown follows a solid fourth quarter of 2021 in which Massachusetts’ GDP grew 7.8 percent annually.
“The sharp slowdown in growth in the first quarter reflects the impact of the Omicron variant of COVID-19, ongoing supply chain issues, the impact of inflation on purchasing power and weakening consumer and investor confidence. As the growth-dampening effect of Omicron wore off in late winter and spring, the outbreak of war in Ukraine provided an additional boost to inflation, particularly in energy and food prices. At the same time, the labor market continued to show strong job and wage growth, falling unemployment and record low layoffs,” wrote MassBenchmarks in its latest report. “However, wage growth per worker continued to lag inflation, dampening overall purchasing power and slowing real activity.”
Inflation accelerated from 6.6 percent in the fourth quarter of 2021 to 10.8 percent in the first quarter of 2022 for the Boston area, a much larger increase than the jump from 7.9 percent to 9.2 percent nationally. According to MassBenchmarks, consumer prices rose 6.8 percent in Boston and 8 percent nationally last year. If food and energy costs are rolled back, the inflation rate for the Boston area in the first quarter of 2022 would be 8.1 percent.
MassBenchmarks said its outlook for the economy over the next six months “requires slow growth but the level of uncertainty is high.” The analysts said the Federal Reserve’s action to raise interest rates in an attempt to avoid a recession was “a tricky process that has led to growing pessimism in the forecasting community.”
In January, MassBenchmarks, based on its benchmark index, forecast growth of 5.6 percent in the first quarter of 2022 and 4.6 percent in the second quarter. In the report released Thursday, MassBenchmarks noted that a Wall Street Journal poll of economists in April put the likelihood of a recession in the next 12 months at 28 percent, up from 18 percent in January.
Also on Thursday, Citizens announced that its Citizens Business Conditions Index for Massachusetts rose to 57.45 for the first quarter of 2022 from 55.45 for the fourth quarter of 2021. However, compared to the first quarter of 2021, the MA index lost a full point. The bank said that an index reading above 50 “indicates expansion and suggests positive business activity for the next quarter.”
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