Report: Slower Growth Ahead as Federal Changes Take Hold

Massachusetts’s real GDP increased at an annual rate of 2.6% in Q2-2025

Job and labor force surveys are starting to pick up on the early impacts of President Donald Trump’s trade and tariff policies and other federal government shifts to Massachusetts, economists at MassBenchmarks said as they predicted a slowdown in growth.

Massachusetts’s real gross state product (GDP) increased at an annual rate of 2.6% in the second quarter of this year while national GDP increased at a 3% rate, MassBenchmarks said. The state GDP is projected to grow at rates of 2% in the third quarter and 1.9% in the fourth quarter of this year, according to the economic journal published by the University of Massachusetts Amherst Donahue Institute in cooperation with the Federal Reserve Bank of Boston.

In the first quarter of this year, Massachusetts GDP and U.S. GDP decreased at annual rates of 0.9% and 0.5% respectively.

“The anxiety and uncertainty of the business community and households in the first quarter diminished during the second quarter as the Trump administration softened its tariff stance, negotiations with trading partners seemed to be making progress in forestalling a trade war, and the consumer has been spared the worst of the feared tariff hikes on prices — at least for now,” MassBenchmarks editors wrote. “Although tariff policy announcements continued to be sharp and unpredictable, businesses and investors appear to have settled on interpreting this as bargaining strategy by the administration and seem to be anticipating a new normal of moderately high — but not extreme — tariff rates. By the end of the second quarter, most headline economic indicators appeared unremarkable and essentially normal.”

The MassBenchmarks economists said the medium- and long-term impacts of the Trump administration’s policies on tariffs, the federal budget and immigration will take time to show up in economic indicators. But they pointed to a handful of things they see as early signs of impacts.

Cuts in federal research and development are “likely to intensify” a weakness in the pharmaceutical and biotechnology sector that shows up in negative trends in employment in scientific research and development services, they said, and early data from the U.S. Census Bureau’s Current Population Survey for Massachusetts “are consistent with a decline in the state’s foreign born labor force in recent months, and a decreased flow of new immigrant arrivals into the state this year.”

And after declining since mid-2023, MassBenchmarks said durable goods prices — “the sector most heavily impacted by foreign trade and tariffs” — have begun growing on a year-over-year basis.