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High hopes for region's three-cornered economy

By Staff writer of The Christian Science Monitor / February 9, 1984


The Bank of Boston pays James M. Howell to play the role of oracle. Of course , as chief economist he pores over reams of economic data and does some serious calculating before proffering his prognostications.

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What's his fiscal forecast for the region?

''In the next three to five years New England will experience unparalleled prosperity,'' Mr. Howell predicts. And among economists, he's not alone. Says Allan Sinai, chief economist at the Lehman Brothers, Kuhn, Loeb brokerage house in New York, ''I'm hard put to find a group of states with greater potential.''

New England's unemployment is lower than any other region in the nation. New Hampshire's jobless rate tops the list at 4.3 percent for December. The national average is 8 percent.

Wages here, now among the lowest in the nation, are expected to rise fastest. High employment, especially as national joblessness drops, means competition for skilled workers and professionals is going to heat up.

In this recovery, New England has a jump on the rest of the United States because it suffered least in 1981-82. While the rest of the nation was staggered by the worst recession in decades, the pace of growth here merely slowed. The region's gilt-edged prosperity is due as much to what it lacks as to what it has.

The last recession hit the auto, steel, and housing sectors hardest; soaring interest rates crushed traditional smokestack industries. During the past 20 years, New England has moved out of smokestacks and stocked up on high-tech firms. As a result, the area remained partly insulated from these ravages. And it reaped the benefits of continued growth, albeit slower, in computer-related industries during the recession.

But high technology is not the only leg New England's economy stands on. There are two additional trestles that provide a ''balance that New England hasn't had in many decades,'' says Howell at Bank of Boston.

''Sophisticated services (medical, educational, and financial)'' Howell says, are a stout and strengthening limb. Nationwide, the service industry is the fastest growth area - New England is no exception. Two of every three workers here are employed in this sector.

''From 1975 to 1981 the number of individuals employed in the medical, business, and education sectors jumped by one-third, while finance, insurance, and real estate together added over 65,000 jobs during the same period,'' writes Dianne M. Caughey, economist of the New England Council in Monitor, a quarterly newsletter begun last fall by the New England Economic Project.

The third leg of the economic triad here? Defense industries.

New England benefits more than any other region of the nation from President Reagan's boost in defense outlays. The area is flush with major defense contractors such as General Dynamics, United Technologies' Pratt & Whitney, Bath Iron Works, General Electric, Raytheon, and Sanders Associates.

''Over the next four years, New England ought to get $82 billion in defense funding. That in turn will generate demand for some 225,000 workers; about half of that number will be new jobs,'' says Howell. He bases his estimates on Reagan's $1.6 trillion defense budget proposal spanning fiscal years 1983 through '88.

Massachusetts and Connecticut each get, and probably will continue to get, more than their share of the US military hardware contracts. Connecticut won more prime defense contracts (over $10,000) per capita than any other state in 1982. Massachusetts placed third.

''In 1984, almost all capital spending increases in New England will be due to defense funding,'' Howell says. Each year the Bank of Boston surveys 4,000 manufacturers to determine their capital-spending plans. The survey will be released later this month.

The region experienced a similar buildup in the late '60s, and the economy became overbalanced in defense-related manufacturing. In Massachusetts, between 10 and 12 percent of total employment was in defense work. This time, says Howell, defense-related jobs may reach a more comfortable 5 or 6 percent of the total.

Many companies capturing defense contracts here are high-technology based. This is the most essential component of the region's economy. It overlaps and supports the growth in services and defense and is responsible for leading the recovery here.

''The first area for expansion in this recovery has come in computer-related equipment. We have benefited from that greatly,'' says Allen Groves, vice-president and director of research at the Federal Home Loan Bank of Boston.