Massachusetts' High Tech Sector Hit Hard by Recession, Report Shows

Massachusetts' high tech economy was hammered by the economic equivalent of a nor’easter throughout much of 2002, according to a report released by the Massachusetts Technology Collaborative (MTC). The Index of the Massachusetts Innovation Economy tracks nine industry clusters and 30 economic indicators and documents the declines experienced in the Massachusetts Innovation Economy, which is responsible for one quarter of all jobs in the state.

The data show that compared to last year unemployment is up, the state’s consumer confidence index is down having dropped more than 14 percent, and Massachusetts had only one initial public offering in 2002. Venture capital investments in Massachusetts also fell 36 percent in the first six months of 2002 compared to the first six months of 2001, dropping from $2.2 billion to $1.4 billion.

"For the first time in the six year history of our analysis, nearly all of the current economic indicators point to either unchanged or weakened performance in the Massachusetts economy," said Collaborative Executive Director Mitchell Adams. "However, we are much better prepared to weather this storm than we were in the early 1990s, and the fundamental strengths of the more diverse Massachusetts economy will help us get through this national cycle."

The Innovation Index benchmarks the local economy against other leading technology states such as California, Colorado, Connecticut, Minnesota, New Jersey and New York. While the Massachusetts economy outperformed these states in some of the key industry clusters, several chronic problems still require attention, according to the index. Areas of concern include:

• Massachusetts’ population grew less than 1 percent (0.6 percent) per year from 1991 to 2001, while Colorado had the highest average annual population growth rate at 2.8 percent, and California was second with a 1.3 percent growth rate.
• In 2001, the median price of a single family home in Massachusetts was $252,000, the second highest of leading technology states. Between 1997 and 2001, the average price of a single-family home in Massachusetts rose by 40 percent compared to a 25 percent increase nationwide.
• From 1990 to 1999, growth in Massachusetts’ public and private university enrollments combined lagged most competitor states and the U.S. average.
• Massachusetts experienced a decline in its total number of Technology Fast 500 firms dropping from 57 to 31 between 1997 and 2001, while California gained two Fast 500 firms (130 to 132) and New York gained 21 firms (12 to 33).

The 2002 Index does identify significant basis of underlying long-term strength in the Massachusetts Innovation Economy. Compared to its competitor states, Massachusetts has the highest percentage (0.91 percent) of Ph.D. scientists and engineers in its workforce. Corporate R&D spending by Massachusetts companies increased approximately 25 percent from 2000 to 2001.

Another indicator of underlying strength in the 2002 index is contained in a special analysis of the life sciences sector. The report indicates the emerging life sciences area stands out as a bright spot on the economic horizon at a time when most industry clusters are struggling. Job growth, federal R&D investment and venture capital investments, as well as life-saving new products and procedures, are emanating from the life sciences sector in Massachusetts.

MTC is the state’s development agency for renewable energy and the innovation economy. The Innovation Index is available at: http://www.mtpc.org/InnovationEconomy/the_index.htm