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The year 1991 was an eventful one.
The Soviet Union ceased to exist. The Dow Jones Industrial average topped 3,000 for the first time. Larry Bird played his final season with the Boston Celtics.
And Associated Industries of Massachusetts (AIM) quietly initiated a business confidence survey that for three decades has gauged the outlook of employers during the some of the most economically tumultuous times ever.
AIM today begins a month-long celebration of the 30th anniversary of its Business Confidence Index (BCI). The Index, supervised by a distinguished group of economists and business leaders called AIM Board of Economic Advisors, has become one of the most prominent measures of the health of the Massachusetts economy.
The BCI is widely reported in the news media because business confidence measures the willingness of employers to expand, hire and make capital investments.
“The Business Confidence Index has been a remarkable bellwether of employer sentiment through both changing economic cycles and long-term economic shifts during the past 30 years,” said John Regan, President and CEO of Associated Industries of Massachusetts.
“The Index also provides an early window into challenges faced by employers seeking to grow in Massachusetts. Those challenges have recently included the pandemic, an acute shortage of qualified employees and disruptions to supply chains.”
The BCI grew out of a decision by AIM to convene a group of economists and business leaders in 1991 to support the economic agenda of newly elected Governor William Weld.
“The discussion about an ongoing survey generated the idea by Peter Kozell – an economist at Shawmut Bank – to use the consumer confidence index questions keyed to businesses was immediately supported, with Peter agreeing to work with Rick Lord, AIM’s research director, to build and implement a monthly business confidence survey,” recalled Brian Gilmore, retired Executive Vice President of Public Affairs at AIM.
The Business Confidence Index 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 in 1997-98, and its all-time low of 33.3 in February 2009.
The BCI for July is due to be released tomorrow. The Index has surged more than 20 percent since January as the Massachusetts economy grew at a 6.9 percent annualized rate in the first quarter and 6.2 percent in the second.
That close relationship between employer confidence and economic trends has been seen throughout the 30-year history of the BCI. The Index has traced everything from the “irrational exuberance” of the 1990s to the financial crisis of 2008/2009 and subsequent “jobless recovery” to the economic whipsaw of COVID-19.
“The Business Confidence Index at once identifies developing trends that will shape the economy and the manner in which those trends will affect the willingness of companies to invest, hire and grow,” said Sara L. Johnson, Chair of the Board of Economic Advisors and Executive Director of Global Economics at IHS Markit.
What events and trends have most significantly changed the world during the three decades of the Business Confidence Index?
Johnson maintains that the revolution in communications technology and globalization have been signature developments.
“The first two decades of AIM’s Business Confidence Index coincided with rapid globalization of commerce. World imports of goods and services rose from 14% of global GDP in 1991 to a peak of 24% in 2008 before settling at 21% in the 2015–21 period. Pivotal events included the creation of the World Trade Organization (WTO) in 1995, introduction of the euro in 1999, and China’s entry into the WTO in 2001. This new wave of globalization transformed supply chains, heightened international competition, increased productivity through specialization and technology transfer, and opened new markets for Massachusetts companies,” she said.
Nada Sanders, Distinguished Professor of Supply Chain Management at Northeastern University and a member of the Board of Economic Advisors, points to climate change and the accelerated development of the Internet.
Climate change, according to Sanders, has become a major economic and societal disruptor. She says that events caused by climate change are causing global economic and supply chain disruptions, relocation of production centers, rerouting of transport, damage to civil infrastructure, supply shortages, changes in population flow, and a host of other impacts.
Fellow BEA members Elmore Alexander, Dean Emeritus of the Ricciardi College of Business at Bridgewater State University, and Jim Sibley, Regional Commissioner, Bureau of Labor Statistics, believe the rise, growth and success of biotechnology has been the most important factor for Massachusetts ever since Biogen became the first major company in that industry to go public in 1991.
“Whether measured by number of companies, breakthrough products, or international presence, the biotechnology industry in Massachusetts has been a story of incredible success for many years,” Sibley said.
Michael Goodman, a BEA member and Acting Provost/Vice Chancellor of Academic Affairs at the University of Massachusetts at Dartmouth, says the rapid deployment of broadband service and completion of the “Big Dig” stand out as economic markers of the past 30 years.
“In addition to improving transportation and related benefits, the depression of the Central Artery opened up the Boston Seaport area to billions in private development activity. Most of the impact/benefits have been concentrated in the immediate Boston area but the scale of the impact has been underappreciated,” Goodman said.
A final snapshot from 1991 – the Massachusetts state budget was $13 billion (it’s $46 billion today) and a young up-and-coming Harvard graduate named Charlie Baker became Undersecretary of Health and Human Services under Governor William Weld.