Dull Forecast for NE Economy

Dull, if not dreary is the near-term forecast for the Massachusetts economy. A panel of forecasters met yesterday in Boston to give their assessment. More now from WBUR's Business and Technology Reporter Curt Nickisch.

Audio for this story will be available on WBUR's web site later today.

TEXT OF STORY

CURT NICKISCH: The New England Economic Partnership weighs in twice a year. In the spring, they weren't exactly exuberant, predicting very modest growth for next year. Yesterday, they revised that negatively.

ALAN CLAYTON-MATTHEWS: We have a slowdown coming.

NICKISCH: That's Alan Clayton-Matthews, an economist from UMass Boston. He expects the growth to amount to just two-point-two percent next year, down more than a percent from this year.

CLAYTON-MATTHEWS: And we can see that the slowdown is going to be quite sharp, but won't be a recession.

NICKISCH: That's because under the forecast, the economy will still grow, after all. One reason for the weak growth, though, is fallout from the housing market.

MARK ZANDI: The worst of the direct housing downturn is over.

NICKISCH: Mark Zandi of Moody's Economy.com still expects house prices to bottom out next year and slowly start to pick back up.

ZANDI: Now comes the spillover. The worst of that's yet to come.

NICKISCH: What's spilling over is what's called the wealth effect. Basically, people have reluctantly come to the realization that their houses are worth less than a few years ago. So Zandi says that makes them feel less rich, which is bad for consumer spending.

ZANDI: That's the negative wealth effect that we're going to see in the coming months and coming year.

NICKISCH: But Zandi says it won't be negative enough to bring the economy under. Still, he's got his eye on a couple of things. Oil prices for one. If they stay near one hundred dollars a barrel like they are now, Zandi says that would be enough to push the economy into negative territory. But he doesn't think they will. He also thinks mortgage companies will figure out ways to modify existing home loans, to keep people facing foreclosure from moving out.

ZANDI: I think political pressures to do so are rising very rapidly, and of course the economic cost to go into foreclosure is quite high. So I think they will engage in more modification efforts over the next few months.

NICKISCH: But there's no getting around what's already happened, and so that's why the state and region's economic growth is expected to be so tepid next year. One bright spot for Massachusetts, though. The Bay State has a relatively high proportion of people who are employed by corporations rather than small businesses. And since corporate profits are still up, those firms probably won't lay people off when there's money to be made. That means the Commonwealth is likely to keep layoffs away, and hopefully any recession at bay.

For WBUR, I'm Curt Nickisch.