The Massachusetts economy hit a significant slowdown in the first quarter of 2022 as another wave of COVID-19, sky-high inflation rates and persistent supply chain problems combined to bog down growth, economic analysts at MassBenchmarks said Thursday.
MassBenchmarks, which is published by the UMass Amherst Donahue Institute in cooperation with the Federal Reserve Bank of Boston, said real GDP in Massachusetts decreased at a 1.4% annualized rate in the first quarter, steeper than the 1% dip in national GDP. The slowdown comes on the heels of a solid fourth quarter of 2021, which saw Massachusetts GDP grow at an annual rate of 7.8%.
“The sharp slowdown in growth in the first quarter reflects the impact of the Omicron variant of COVID-19, continued supply chain problems, the effect of inflation on purchasing power, and weakening consumer and investor confidence. As the growth-dampening effect of Omicron waned in late winter and early spring, the outbreak of war in Ukraine gave an added boost to inflation, particularly for energy and food prices. At the same time, the labor market continued to exhibit strong gains in employment and wage growth, falling unemployment, and record low layoffs,” MassBenchmarks wrote in its latest report. “Wage and salary growth per worker, however, continued to lag inflation, dampening aggregate spending power and slowing real economic activity.”
Inflation accelerated from 6.6% in the fourth quarter of 2021 to 10.8% in the first quarter of 2022 for the Boston area, a much more significant increase than the jump from 7.9% to 9.2% nationally. MassBenchmarks said consumer prices have increased by 6.8% in Boston and 8% nationally over the last year. If food and energy costs are backed out, the first quarter 2022 inflation rate for the Boston area would be 8.1%.
MassBenchmarks said its outlook for the economy through the next six months “calls for slow growth, but the level of uncertainty is high.” The analysts said the Federal Reserve’s actions to raise interest rates while trying to avoid a recession represent “a tricky process that has led to a growing pessimism in the forecasting community.”
In January, MassBenchmarks used its Leading Index to forecast growth of 5.6% in the first quarter of 2022 and 4.6% in the second quarter. In the report it released Thursday, MassBenchmarks noted that a Wall Street Journal poll of economists in April put the probability of a recession in the next 12 months at 28%, up from 18% in January.
Also Thursday, Citizens announced that its Citizens Business Conditions Index for Massachusetts had climbed from 55.45 for the fourth quarter of 2021 to 57.45 for the first quarter of 2022. Compared to the first quarter of 2021, however, the Massachusetts index has lost a full point. The bank said an index reading above 50 “indicates expansion and points to positive business activity for the next quarter.”