New England's economic outlook

New England Journal of Higher Education, The, Summer 2002 by Gittell, Ross

A Mild Recession Followed by Slow Growth Promises Mixed Blessings for Higher Education

Over the next few years, no single academic program area is likely to boom in the way, for example, that e-commerce did in the late 1990s. Nor will any single industry or occupation lead the economy so much that it creates as strong pressure for new academic programs.

The 2001 recession appears to be over in New England and the nation. Like the winter of 2001 (and unlike the last recession of the early 1990s) it appears to have been relatively short and mild. The effects of September 11 sharpened the business cycle in New England and the nation and made for a v-shaped downturn in the region. The deep and prolonged recession feared after September 11 has not materialized.

Data analyzed by the New England Economic Project (KEEP) indicate that the nation experienced negative overall growth in gross output only in the third quarter of 2001. New England's period of negative economic growth (as measured by aggregated gross state product) was longer than the nation's, but still much shorter than the previous recession. The 2001 recession in New England began before September 11 and lasted three quarters from the second quarter of 2001 through the end of the year.

Moderate growth

New England's overall economic growth is expected to rise over the next few quarters but remain modest. The growth in aggregate gross state product in New England over the next five years is expected to be about 40 percent lower than during the late 1990s and just below the U.S. average of 3 percent per year. The main reason for this is the end of the information and high-technology boom and its disproportionately strong impact on the New England economy.

Information technology investment is not expected to rebound until the end of 2002. Investment in computer software and hardware will be helped by increased replacement demand and improved business confidence. The relatively short product life cycles of this equipment and leaner inventories will support a turnaround. Investment in communications hardware and infrastructure, however, is not expected to rebound until well into next year because the economic life of this equipment is longer and there is remaining inventory and excess capacity.

New England will have experienced a total job loss of 1.5 percent from the peak in the first quarter of 2001 to the expected trough in the first quarter of 2002. This compares to the regional job loss of 5 percent in the last recession. The recent decline was concentrated in manufacturing, which suffered a total job loss of 7.5 percent. In the recovery, total employment growth in New England is expected to be below I percent per year on average. This is one-half the rate of growth during the late 1990s, and just three-quarters of the nation's expected employment growth. The sector of the New England economy that is expected to grow fastest will be services, albeit at a rate about one third that of the late 1990s and just threequarters that anticipated for the nation. In particular, growth in business services, including software, is expected to lag behind overall growth and put a drag on overall employment growth in New England's service sector.

While there are indicators that both the U.S. and New England economies are out of recession, five of the last seven recessions have been "double dips," in which the economy rebounded for a while only to relapse. Numerous factors could precipitate a recession relapse in 2002 or 2003. These could include a decline in investor and credit marlet confidence in reaction to new cases of corporate malfeasance along the lines of Enron and Arthur Anderson, or a sharp increase in energy prices related to events in the Middle East. A third risk is that consumer resiliency could finally be broken by some combination of declining equity markets, increased interest rates and persistent unemployment.

Higher-ed investment

State support for higher education, historically very low in New England, is further threatened by significant and likely growing budget deficits in all six state capitals related to the recession. Higher education tends to be used as the balance wheel in bad times to make ends meet. Of the 43 states that either cut overall spending or raised additional revenue in the past year, 29 cut higher education spending, according to a survey by the National Conference of State Legislatures. This was the most popular means of closing budget gaps, ahead of measures such as tapping reserve funds.

Lawmakers across New England are taking aim at higher education. In the past nine months, for example, Connecticut has seen a $300 million budget surplus turn to a $200 million budget gap, and Gov. John Rowland asked public colleges to plan on budget cuts of 5 percent. In Maine, Gov. Angus King asked for a midyear rescission of 2 percent in state spending on public colleges. In Massachusetts, the Legislature slashed 7 percent from the state's higher education budget, in order to help close a projected $1.1 billion deficit and about $10 million has been slashed from the state's need-based aid program for 2001-02.