iStock illustration

The Massachusetts economy is running well despite signs of a slowdown and while no single factor is holding the economy back, analysts said the combination of a labor shortage, trade tensions, an impeachment inquiry and more could darken the outlook.

Economists at MassBenchmarks reported Wednesday that “despite the recent slowdown and the uncertainties on the horizon, the performance of the Massachusetts economy remains solid.” MassBenchmarks board members discussed the factors contributing to a slowdown – the state economy grew at a 1.4 percent annualized rate in the second quarter, slowing from a 2.7 percent annualized rate in the first quarter – and agreed “that labor supply is playing a role in tempering economic growth.”

The state’s low 2.9 percent unemployment rate means some employers could have a harder time finding workers to fill jobs, leading to employment growth that is “slowing significantly.” But on its own, the tight labor market is not enough to drive the economy down.

MassBenchmarks pointed to other sources of uncertainty – global trade tensions, the looming split between the United Kingdom and the European Union, instability of global financial markets and the U.S. House’s ongoing impeachment inquiry – that, when combined, have a damning effect on the economic outlook.

“While any single one of these ‘wild cards’ might not have much influence over our economic outlook, together they can be expected to exert downward pressure on business investment and consumer confidence over time,” the economists wrote in a summary of their most recent discussion.

Associated Industries of Massachusetts said two-thirds of Massachusetts employers they surveyed last month expect the national economy to contract within about a year and that “a darkening outlook among manufacturers” is bogging down overall confidence among Bay State employers.

AIM’s Business Confidence Index was essentially flat in September and at 58.9 points now stands 3.7 points below its mark from September 2018. During the same period in which the overall confidence reading shed 3.7 points, AIM’s manufacturing index dropped 7.9 points. The index is measured from zero to 100, with 50 being neutral, and its readings have been above 50 for nearly six years running.

“Manufacturers are bearing the brunt of both actual and threatened tariffs against goods imported from China. Many Massachusetts companies have also become caught in retaliatory tariffs and are seeing significant weakening of their overseas business,” Raymond Torto, chair of AIM’s Board of Economic Advisors, said.

AIM said the results of its survey mirror the warning signs sent last week by the Institute for Supply Management, which reported that manufacturing sector economic activity contracted for the second straight month in September. The institute’s index was down 1.3 percentage points to 47.8, into negative territory and to its lowest reading since 2009.

Manufacturing accounts for about 9.4 percent of Massachusetts’ total output ($49.5 billion in 2017) and the sector employs roughly 6.7 percent of the state’s workforce, according to the National Association of Manufacturers. In 2016, there were 6,239 total manufacturing firms in Massachusetts, the association said.

AIM reported that Massachusetts non-manufacturers were more confident (a reading of 61.9 points) than manufacturers (55.4 points) last month, that companies in eastern Massachusetts (62.6 points) continue to be more optimistic than western Mass. firms (53.8 points) – and that those gaps “appear to be growing.”