Massachusetts business confidence fell in August as concern about tariffs and renewed expectations of interest-rate hikes to combat inflation outweighed slow-but-steady growth in the overall economy.

The Associated Industries of Massachusetts Business Confidence Index (BCI) fell 5.3 points to 47.4 on a 100-point scale last month. The decline returned the Index to pessimistic territory and left confidence1.6 points below its level of August 2025.

The confidence slump came as the Trump Administration announced 50 percent tariffs on some $20 billion worth of Canadian imports, an action that sparked retaliatory measures by New England’s largest trading partner. At the same time, renewed hostilities with Iran pushed up oil prices and roiled the bond market.

“Inflation remains well above the Federal Reserve’s 2% target,” said Sara Johnson, Chair of the AIM Board of Economic Advisors (BEA), which oversees the Business Confidence Index. “The personal consumption deflator, the Fed’s preferred inflation measure, rose 3.7% year-on-year in July, while core prices increased 3.3%. Persistent inflation is contributing to the rise in long-term interest rates.

“The good news is that we continue to see growth in business investment – particularly in artificial intelligence, advanced manufacturing, and technology – and solid gains in consumer spending.”

Tariffs were very much on the minds of companies that participated in the survey.

“The tariffs have substantially impacted one half of our businesses, and now the Canadian tariffs are only making the situation worse,” wrote the CEO of a manufacturing company.

Another employer wrote: “Business outlook for retail is dampened due to increased pressure on consumers due to persistent inflation and tariffs. Direct (high gas prices) and indirect (consumer and retailer unease) impact of the conflict in Iran are impacting sales despite government efforts to mitigate the perception of these issues.”

The AIM Index, based on a survey of more than 140 Massachusetts employers, has appeared monthly since July 1991. It is calculated on a 100-point scale, with 50 as neutral; a reading above 50 is positive, while below 50 is negative. The Index reached its historic high of 68.5 on two occasions, 1997-98, and its all-time low of 33.3 in February 2009.

Constituent Indicators

The constituent indicators that make up the Index were uniformly lower during August.

The confidence employers maintain in their own operations fell 5.1 points to 50.4. The figure was 1.2 points lower than 12 months ago.

The Massachusetts Index, assessing business conditions within the commonwealth, lost 2.4 points to 46.4, still 0.8 point better than August 2025. The US Index measuring conditions throughout the country slid 8.6 points to 39.4, ending the month 5.2 points lower than a year ago.

The Current Index, which assesses overall business conditions at the time of the survey, declined 3.9 points to 48.6 while the Future Index predicting conditions for the next six months fell 6.7 points to 46.1.

The Employment Index lost 3.6 points to 48.6, down slightly from the same month a year ago. MassBenchmarks reports that the Massachusetts labor force declined at a 3.2 percent annual rate between January and June, compared with a 1.6 percent decline for the U.S.

Meanwhile, the AIM Manufacturing Index plunged 9.4 points to 49.0.

Medium-sized companies (52.3) were more confident than small companies (46.1) or large companies (45.0).

Simona Mocuta, Chief Economist at State Street Investment Management and a BEA member, said that Federal Reserve Chair Kevin Warsh made clear in his remarks at Jackson Hole symposium that the bias is toward higher rates.

“Chairman Warsh said that the Fed’s price-stability objective of 2 percent, as measured by the PCE index, is a firm, fixed target. That means the Fed, in his words, still has work to do,” Mocuta said.

Global and Local Concerns

AIM President and CEO Brooke Thomson, also a BEA member, said employer concerns fall into two categories – global uncertainty and local affordability.

“Global uncertainty manifests itself in issues such as tariffs, inflation, geopolitics, immigration policy and AI. Affordability covers issues that are closer to home – energy, health care, housing, taxes and regulatory costs,” Thomson said.