Surprise -- Northeast may lead US recovery

When the United States begins to scramble back out of its economic recession, the result may be what Joseph R. Carter calls ''a domino effect in reverse'' for the rest of the world.

And Mr. Carter, the president of Associated Industries of Massachusetts, says he thinks one of the first dominoes in the nation to pop upright again may well be New England.

New England?

The region that spent much of the 20th century in an economic backwater, after losing its textile and shoe industries?

The region that got clobbered by the 1975 recession - even after it had made the switch to the electronics industry?

The frost-belt region that is often thought to be losing out to its Sunbelt competitors?

Yes, indeed. There is a growing consensus among economists, bankers, and businessmen here that this six-state region will become one of the nation's economic leaders - if not immediately, certainly by the end of the decade.

Even the present looks impressive:

* Unemployment in the region stood at 8.4 percent in July - well below the national average. Its record was beaten only by lower figures from the West North Central farm states and the West South Central Sunbelt states, according to figures from Chase Econometrics.

* Since July, the unemployment rate in Massachusetts (which has nearly half the region's population) has fallen to 7.7 percent - lowest of the nation's 10 industrial states.

* The number of people on manufacturers' payrolls in the region has declined, but at a slower rate than elsewhere. Figures from Data Resources Inc. (DRI) show manufacturing employment in New England falling at a 3.3 percent rate, compared with a national average of 4.1 percent - and far ahead of the 7.3 percent decline in the Great Lakes region.

* Industrial production has also declined - but, again, not as sharply as elsewhere. Lynn E. Browne, a vice-president and economist of the Federal Reserve Bank of Boston, notes that New England's production of durable goods fell 10.5 percent in the year ending in August 1982 - compared with a 13.3 percent drop nationally.

* Meanwhile, personal income in New England has grown. The latest figures from the Bureau of Economic Analysis of the US Department of Commerce show personal income growing at 8.4 percent in the 12-month period ending in June - with only the West South Central region (Texas, Oklahoma, Arkansas, and Louisiana) growing faster.

These indicators measure what James M. Howell, senior vice-president and chief economist of the First National Bank of Boston, calls ''considerable growth momentum'' left over from the resurgence of the region after the 1975 bust. From 1967 to 1975, he says, Massachusetts alone lost 100,000 manufacturing jobs. But by 1980 it had regained most of them - in stark contrast to the Mid-Atlantic region (New York, New Jersey, and Pennsylvania), which regained only 55,000 of the 880,000 jobs it lost in the same period.

There is so much optimism about, in fact, that some observers find it necessary to dampen local ardor. ''The short-term outlook for employment growth and income growth is not favorable,'' Roderick M. MacDougall, chairman of the Bank of New England, warned at the recent annual conference of the New England Council here.

But even he was bullish on the long term, foreseeing the probability of ''a surge of orders'' in the future that will cause the region to ''lead, not track, the national economy.''

As evidence, he cited the Moseley New England Bank Index. That measure, charting stocks prices in 35 regional banks, has risen 41 percent since January - while a corresponding national index is up only 10 percent. ''Only in Texas and Florida'' can you find a higher index, said Mr. MacDougall. Such indexes are read as measures of long-term financial confidence in the regions they represent.

Why the optimism?

Most analysts point to the strength of the high-technology industries in such areas a computers, instrumentation, and communications. Along with a strong finance, insurance, and real-estate sector and a thriving body of professionals in accounting, law, and engineering firms, these employers help broaden the region's economic base.

So positive is their presence, in fact, that DRI is forecasting a short-term regional economic growth rate of 1.8 percent annually to the end of 1984 - which , compared with only 1.3 percent nationally, ranks New England fourth among the nation's nine statistical regions.

DRI foresees an even brighter long-term prospect, with the region moving into the No. 2 spot (behind the West South Central region) from 1985 through 1991.

DRI economist Mark Lauritano, explaining these forecasts, cautions that New England's labor costs (currently low by national standards) will probably rise somewhat as the region gains momentum.

But he cites three other factors which, he feels, will positively influence decisions by businessmen on the location of new or expanding operations:

Education. ''The most important factor for New England is its percentage of college graduates in the population,'' says Mr. Lauritano. New England, he says , has the highest percentage of college graduates in any region - a crucial factor for high-tech and professional-service employers.

Recent studies by the New England Board of Higher Education, in fact, show that while New England produces only 5.2 percent of the nation's wealth, it spends 7.2 percent of all higher education funds in the nation. Many analysts note that the transition from cotton mills to silicon chips is directly related to the presence of the Massachusetts Institute of Technology, Harvard, Yale, Dartmouth, and the rest of the more than 250 colleges and universities in the region.

In the long term, many observers say, educational traditions here will be a telling advantage in frost belt-Sunbelt competition. As MIT Prof. David Birch notes, ''We shipped (the Sunbelt) all our low-tech - and kept the thought-ware.''

Taxes. Addressing a recent dinner meeting here, Census Bureau associate director Shirley Kallek met some knowing grimaces when she talked about high taxes in Massachusetts. For single-family homes in large cities, she said, the tax bill as a percentage of sales price averages 1.8 percent nationally. In Boston, however, it stands at 3.8 percent.

But the region's reputation for high taxes is changing. In 1980, Proposition 2 1/2 in Massachusetts limited property-tax increases. Earlier this month, Maine voters passed a referendum to ''index'' their personal income taxes and prevent inflation-induced increases.

Energy. Having no indigenous energy resources and heavily dependent on oil, New England has taken impressive strides toward conservation. Figures from the Federal Reserve Bank show that in 1981 this cold corner of the country (which has 5.4 percent of America's population) used only 4.3 percent of the nation's residential electricity and only 4.8 percent of its gasoline.

Meanwhile, the region's electric utilities have been shifting away from oil, according to Guy W. Nichols, chairman of the New England Electric System. In 1979, his company generated 78 percent of its output from oil (most of it imported), and none from coal. By 1983, he says, oil will account for only 20 percent of the output, and coal for 55 percent.

But Edward F. Burke, chairman of the Rhode Island Public Utilities Commission and past president of the National Association of Regulatory Utility Chairmen, warns that, despite conservation, New England ''cannot be energy competitive in 1983.''

Over the longer term, however, he sees the advantage swinging closer to New England's favor. He cites several factors: power-plant conversions from oil to coal; growth of relatively cheap hydropower imports from Canada; and the completion of new nuclear power plants.

Natural gas price deregulation will also help. New England uses little natural gas, while Sunbelt competitors face sharply increasing energy costs.

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