In Good Times and in Bad, Isenberg Economist Hedges His Bets

Students who take statistics and economics with Isenberg’s Robert Nakosteen gain analytical skills that include learning to hedge their bets. Consider the Isenberg professor’s circumspect comments on Massachusetts’ largely robust economy—insights that graced the December 15 issue of BusinessWest.

“The picture is fuzzy, and through the fuzziness, we see a lot of positives, but we also see some risk.”

“The picture is fuzzy, and through the fuzziness, we see a lot of positives, but we also see some risk,” he told the magazine. “The [state’s] current expansion appears to be on firm footing — the economy in the state has slowed down recently, but it’s still been a really good year,” he told the magazine. “We’re expecting growth over the year or so,” he continued. “. . . but we’re definitely seeing some slowing. The economy has been growing at 2% or a little less, and that’s not vibrant.”

Still, Nakosteen and his fellow board members on the journal MassBenchmarks, where he is Executive Editor,* agree that employment in Massachusetts is growing at rates not seen since the late 1990s. And this time, he says, there is no tech bubble—the economy is more well-rounded. “Our resilience has surprised us,” he says.

A Comparative Advantage in Technologies and Innovation

Last year, Massachusetts added 50,000 to 60,000 new jobs, notes Nakosteen. Much of the overall economic growth, he says, has been driven by the state’s Technology and Knowledge-intensive sector, where jobs in the professional, scientific, and technical services industry grew by more than 5% last year. (That sector also includes legal, accounting, engineering, research, computer, consulting, and other services.) And, he adds, the state’s Health Services and Products sector, which includes pharmaceutical and medical device firms, and healthcare providers, has also proved dynamic.

Cautionary Considerations

Alongside that core of solid growth, there are pockets of uncertainty, he emphasizes. The strong U.S. dollar is dampening the state’s export performance, including sales to Massachusetts’ largest trading partner, Canada. Exports to Canada “have really dropped over the past year,” he told BusinessWest. And the slowdown in China’s growth rate is also likely to exert downward pressure on the state’s exports.

And, there are lingering issues with consumer confidence, he continued. “We have not seen the surplus from lower gas prices turn into consumer spending—it’s going into savings or to reduce debt,” he observed. “. . . it will be interesting to see if over time consumers start behaving differently and take this surplus and spend it,” he told the magazine.

As for the Fed’s recent .25% increase in the federal funds interest rate, “It’s not going to do much. It’s more a tapping on the brakes of a reviving economy, which has come through unprecedented, historically low interest rates in the wake of the Great Recession. All that contributes to the fuzziness that I discussed above.”

Auguring the Future

Nakosteen is yet more cautious about reading economic tea leaves. While generally optimistic about the coming year, he is reluctant to get overly specific. “Some academics, urged on by the press, relish that role,” he says. “Not me. There is too high a probability of unexpected events shaking things up,” he says. “Getting a handle on economic trends and tempering any wishful thinking with skepticism—that is my approach and I hope that my students can learn from it.” 

*A journal devoted to the Massachusetts economy, MassBenchmarks is published by the University of Massachusetts Donahue Institute in cooperation with the Federal Reserve Bank of Boston.