New England's economic recovery seen lagging U.S.

BOSTON (Reuters) - New England is in a "severe recession" that will destroy about 450,000 jobs, or about 6.3 percent of its workforce, by next year when a slow recovery begins that will lag the U.S. average, economists said.

"We expect the region to have a relatively slower recovery based upon our dependence on investment spending, capital goods spending, particularly in Massachusetts," said Ross Gittell, forecast manager of the New England Economic Partnership, a group of top regional economists.

"We are in a severe recession," the University of New Hampshire professor told a conference at the Federal Reserve Bank of Boston, where he released a new forecast on Thursday.

The high concentration of business investment and high-income dependent industries in New England's six states, along with a slow-growing and aging population, will lead to a slightly more pronounced employment decline, he said.

The drop in New England's employment will likely bottom in the second quarter of next year, he said. From then until the end of 2012, employment will grow at a rate of just 5.8 percent, compared to 9.1 percent nationally, he added.

"Our rate of growth in the region is expected to be about two-thirds the rate of growth in the U.S. coming out of this recession," said Gittell, adding that New England was about two-thirds of the way through its projected employment losses.

By the end of 2012, about 60,000 jobs will have disappeared in New England since the start of 2008, the forecasters said in their 112-page spring report. Losses are concentrated mostly in the construction, manufacturing and finance industries.

But a better-educated workforce in New England, home to some of the nation's top schools, and slow labor force growth will keep unemployment below rates in other parts of the nation, they added. The forecasters expect unemployment to peak in the region at 9.2 percent by the middle of next year.

Rhode Island is projected to have the highest unemployment of New England's six states, peaking at 10.9 percent, they said. Maine was projected to peak at 9.7 percent, Massachusetts at 9.5 percent, Connecticut 8.9 percent, Vermont 9.0 percent and New Hampshire will have the lowest peak at 7.1 percent.

House prices are down across the region but the declines are not as sharp as in California, Florida, Nevada, Arizona, and several states in the Midwest, the forecasters said, projecting New England's median housing prices will fall 26 percent from the peak to the trough of the downturn.

That compares to about 37 percent nationally, the report said. Homes in Rhode Island will suffer the biggest median price drop at 37 percent, and Vermont and Maine will post the smallest declines of around 20 percent each, the report added.

(Reporting by Jason Szep; Editing by Kenneth Barry)