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Massachusetts Unemployment Up, But Is That Bad?

Rising unemployment and a slow second quarter have given analysts reason to wonder how much gas is left in Greater Boston’s economic tank. 

Massachusetts Unemployment Up, But Is That Bad?
The downtown Boston skyline

“A lot of people are waiting to see what will happen,” NAI Hunneman Director of Research Liz Berthelette said. “It’s 50-50 as to whether 2018 is that turning point where we see recessionary conditions.”

Massachusetts has had a lower unemployment rate than the United States average since April 2008, but the trend appears to be waning. The most recent data for the U.S. is July’s 4.3% unemployment rate. Massachusetts has risen from a 10-year low of 3.1% in December to a 4.3% unemployment rate in June, according to the Bureau of Labor Statistics.   

There was an office growth trend reversal in Q2, Berthelette said. The 495 West submarket, typically late to local economic recoveries, saw more absorption than downtown Boston, where office vacancies pushed higher to 8.2%. Looking into Q3, mergers and corporate right-sizing could continue to impact the city’s office market. 

A mergers and acquisitions boom shows no sign of slowing down, which could result in a reduction of Boston offices and put space on the market. Law firms and other large tenants have reduced their office footprints recently, according to NAI Hunneman’s Q2 2017 Metro Boston Market Report. K&L Gates and Locke Lord vacated more than 25K SF each in the downtown market. Nationally, the average law firm has reduced its office footprint by 22.2% in recent years.

Massachusetts Unemployment Up, But Is That Bad?
Downtown Boston vacancy and absorption rates since the end of 2014

Despite the lagging quarter, it is hard to find anyone declaring it doomsday in Boston. 

“At the macro level, you’re still seeing a strong economy and wage growth,” Berthelette said. “There are still legs left in this expansion.”

Several high-profile tenants began work recently on new buildings. There was 3.6M SF of office construction in Q2. Site work began on the new Kendall Square headquarters for Akamai Technologies. Construction also commenced on MIT’s South of Main campus and the first phase of GE’s Seaport headquarters. 

Subleasing, a leading indicator of prior downturns, has been on an upward trajectory, but it is nowhere near the levels of the dot-com bust or the 2009 recession. 

“I don’t see alarm bells yet,” Berthelette said. “I don’t expect the next downturn to be as severe as the most recent recession.”

Even the rising unemployment figure is not of much concern to economists.

Massachusetts Unemployment Up, But Is That Bad?
Change in the U.S. labor force (by state) from June 2016 to June 2017

“To give you some perspective on the labor force growth, only Florida, New York, Georgia and Texas — all far more populous states than Massachusetts — grew more in net terms between June 2016 and June 2017,” UMass Donahue Institute Senior Research Manager Branner Stewart said.

More than 121,000 people entered the Massachusetts job market in June 2017 than in the same month a year prior. Whether the people are employed or unemployed and actively looking for a job, Stewart said he is not surprised by the uptick in the unemployment rate.  

“Over the remainder of the year, we will have to see the extent to which more of these people become employed,” he said.