Massachusetts business confidence tumbled into pessimistic territory during June amid indications that the Federal Reserve’s two-year effort to moderate inflation may finally be slowing down the economy.

The Associated Industries of Massachusetts Business Confidence Index (BCI) declined 3.5 points to 49.8 last month, its lowest mark since September. The reading was 0.1 point better than a year ago and just less than the 50 mark that separates negative and positive outlooks.

The results mirror mixed readings in national surveys of both employers and consumers. The Institute of Supply Management indices for both manufacturing and non-manufacturing companies dipped beneath the neutral 50 level in June, while the S&P Global services PMI rose from 54.8 in May to 55.3.

Sara Johnson, Chair of the AIM Board of Economic Advisors (BEA), which oversees the BCI, cautioned about reading too much into a single monthly result.

“One constant in the AIM survey has been weak sentiment among manufacturers. Thus, most of the June deterioration was in service sectors, where post-pandemic recoveries are largely completed, and activity may be stalling,” Johnson said.

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.

Employers who took part in the June survey acknowledged a slowdown in new orders and a lengthening of sales cycles.

“Last year was fantastic! This year is off by 13 percent for bookings and invoicing,” wrote one company.

Another observed: “No one is ordering. Quoting is active but ordering is only what businesses need at the moment. It feels like everyone is holding to see what the election brings. In the meantime, we are reducing our work force by 20 percent.”

Confidence varied regionally across the Commonwealth. The Central Massachusetts Business Confidence Index, conducted with the Worcester Regional Chamber of Commerce, dropped from 50.6 to 46.8; the Western Massachusetts Business Confidence Index, developed in collaboration with the Springfield Regional Chamber of Commerce, rose from 44.8 to 50.3; and the North Shore Confidence Index, conducted with the North Shore Chamber of Commerce, remained in optimistic territory at 52.5.

Constituent Indicators

The constituent indicators that make up the Index were mostly lower during June.

The confidence employers have in their own companies dropped 4.0 points to 50.8. That figure was 1.1 points lower than a year ago.

The Massachusetts Index assessing business conditions within the Commonwealth fell 4.1 points to 49.7, leaving it essentially even with its level of June 2023. The US Index measuring conditions throughout the country declined 1.4 points to 46.7, up 3.3 points over the past 12 months.

The Current Index, which assesses overall business conditions at the time of the survey, lost 4.9 points to 48.2. The Future Index predicting conditions six months from now was down 2.1 points to 51.4.

The Manufacturing Index was down 1.0 points last month after also losing ground in May. The Employment Index fell 1.5 points intro pessimistic territory at 49.2.

Large companies (55.3) were more optimistic than medium-sized companies (47.3) or small companies (46.3).

Simona Mocuta, Chief Economist at State Street Global Advisors and a BEA member, said slowing economic indicators underscore the danger of Fed keeping interest rates too high for too long.

“The data suggest some urgency for the Federal Reserve to reduce interest rates: the drop in job openings, the lengthening duration of unemployment, the further moderation in wage inflation, the slowdown in real disposable income growth and consumer demand, the steady uptick in credit card delinquencies, the relapse in housing activity,” Mocuta wrote in State Street’s Weekly Economic Perspectives.

Economic Development

AIM President and CEO Brooke Thomson, also a BEA member, said employers are encouraged that the Massachusetts House of Representatives and Senate have both approved economic development legislation that provides funding and tax credits for life sciences, climate tech and other industries.

“These bills maintain the Commonwealth’s competitive edge as other states attempt to attract the life-sciences industry. It also extends our lead as the go-to state in the breakthrough climate technology sector. AIM applauds the Legislature for taking a wholistic approach to economic development by spreading the benefits across regions and providing significant support for our foundational industries,” Thomson said.