New England Forecast: Worst Is Over, But Growth Slow

For New England, the worst is over, an economic forecaster says.

Still, regional growth will be slow and the region will not return to pre-recession job levels until mid-2013, the New England Economic Partnership says in a new forecast scheduled for release Thursday.

The Partnership's spring 2010 forecast predicts the region's unemployment rate will continue rising to a peak of 9.3 percent by the first quarter of 2011 because of a natural swelling of the labor force and the return of people who were previously too discouraged to seek work.

"With the slow growth in employment it will take an extended period of time to recover the loss of nearly 366,000 jobs, or 5.2 percent of employment, over the past two years," wrote University of New Hampshire economist Ross Gittell in the forecast's executive summary.

All six states are expected to see employment growth by the end of the current quarter.

Rhode Island, the New England state hardest hit, is expected to see its jobless rate peak at 12.9 percent by the end of this year, while New Hampshire and Vermont could have the region's lowest peaks at 7.2 percent and 6.9 percent, respectively.

"We're turning the corner now, but it's not going to be a strong recovery," Gittell said in an interview. "The good news is the worst is over and we are starting to see some growth in employment."

Most of the New England states appear to be faring better in the recovery than the nation as a whole, he said. The region is benefiting from growth in the professional and business services sector, as well as in education and health services and high technology. Gittell also saw some rebound in the construction industry, but the numbers are nowhere near pre-recession levels.

State-by-state forecasts also released Thursday show varying degrees of optimism, with Massachusetts being the state most "firmly on track" toward recovery. The state experienced strong job growth in the first quarter of 2010 and the gains were expected to continue over the next two quarters.

Gov. Deval Patrick announced separately Thursday that the state's unemployment rate dropped to 9.2. percent in April from 9.3 percent the previous month and that Massachusetts added 19,000 jobs last month.

By contrast, forecasters expected only a "modest" recovery in Connecticut, with the state not even approaching pre-recession job levels until the end of 2014. A slow job recovery was also anticipated in Rhode Island, with concerns expressed about the state's economic policies.

The economic recovery of the northern New England states of New Hampshire, Maine and Vermont was considered to surpass that of the nation, but slow and uneven progress was forecast.

The fact that jobless rates may continue to rise even while overall employment is growing could deal a psychological blow to the region, Gittell said.

"People are going to say, 'Wait a second. The unemployment rate is still close to double digits. I'm not going to go out and buy that big ticket item or redo my house."'

Michael Lynch, regional economist for IHS Global Insight, said most companies that reduced their work forces during the recession will be reluctant to start rehiring anytime soon.

"(Firms) have ramped up productivity and they are not going to have the need to bring people on," said Lynch, who was not an author of the forecast.

Through the end of 2013, New Hampshire and Maine were projected to have the highest percentage growth in total employment among the New England states. Rhode Island was expected to have the third highest, but only because employment had fallen so precipitously there.

But Leonard Lardaro, an economics professor at the University of Rhode Island, said the state was in a dire financial situation. He said, "The idea that somehow if you had a severe recession you're therefore going to have a very rapid recovery, I think is without basis when it comes to Rhode Island."

Lardaro noted that the recent severe flooding in the state also could further slow any resurgence.

The forecast offers a mixed bag for incumbent politicians seeking re-election this fall, Gittell said.

"It's not as bad as it could have been but still there's going to be a lot of questions about why the economy isn't stronger and 'where were you when the economy went down and why didn't you help prevent this?"' he said.