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Business Confidence Hits Three-Year High

Posted on August 26, 2021

Business Confidence Hits Three-Year High

ECONOMY NEWS | August 6, 2021
By: Chris Geehern


Confidence among Massachusetts employers rose to its highest level in more than three years last month as the state and national economies continued to expand despite renewed COVID-19 outbreaks.

The Associated Industries of Massachusetts Business Confidence Index (BCI) marked its 30th anniversary in July by rising 2.2 points to 65.6, some 20 points higher than a year ago.

The increase was driven by a strong outlook among manufacturers and a brightening assessment by all employers of current economic conditions.

Those conditions included an estimated 6.2 percent annualized growth in Massachusetts real GDP during the second quarter and a 6.5 percent annualized surge nationally as federal stimulus dollars and the availability of COVID vaccines stoked the economic recovery. The Massachusetts economy had grown at a 6.9 percent annual clip in the first quarter.

The Massachusetts unemployment rate fell to 4.9 percent in June as employers created 9,400 jobs.

“Every component of the Business Confidence Index rose during July, from employer assessments of their own business prospects to their hiring plans. Employers see the recovery gaining momentum despite the presence of the Delta variant of COVID-19. With the reopening of the Massachusetts economy, consumer spending is proving its resilience,” said Sara L. Johnson, Chair of the AIM Board of Economic Advisors and Executive Director of Global Economics at IHS Markit.

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 in 1997-98, and its all-time low of 33.3 in February 2009.

Constituent Indicators

The constituent indicators that make up the Business Confidence Index were all positive during July.

The confidence employers have in their own companies rose 3.0 points to 67.7, leaving it 20 points better than it was during the depths of the pandemic a year ago.

The Massachusetts Index assessing business conditions within the commonwealth increased 2.4 points to 66.0, up 17.2 points since July 2020. The US Index measuring conditions nationally gained 0.1 point in July and 21.8 points for the year.

The Current Index, which assesses overall business conditions at the time of the survey, gained 3.3 points to 66.6. The Future Index, measuring projections for the economy six months from now, rose 1.3 points.

Confidence among manufacturing companies increased 3.9 points to settle 18.1 points higher than its year-earlier level.

Large companies (70.6) were more bullish than medium-sized companies (65.5) or small companies (59.1). Companies in eastern Massachusetts (69.2) were significantly more confident than those in the western part of the commonwealth (61.7)

Alan Clayton-Matthews, Professor Emeritus of Economics and Public Policy at Northeastern University, and a BEA member, said the American Rescue Plan Act and expansionist monetary policy continue to stimulate consumer demand and hiring by employers.

“Economic growth is expected to remain strong in the second half of the year, but there is a risk that rising COVID-19 Delta variant cases could slow the recovery,” Clayton-Matthews said.

Infrastructure Spending

AIM President and CEO John R. Regan, also a BEA member, said the $1 trillion infrastructure bill moving through Congress should allow Massachusetts to make significant new investments in transportation, utilities, and power infrastructure. The bill contains $550 billion in physical infrastructure spending.

“Roads, bridges, power delivery systems and transportation are key elements of sustainable business growth. The proposed spending plan will be another pillar of the recovery and has the added advantage of being funded by reallocating existing federal resources with no additional taxes,” Regan said.