Business confidence slid for a second consecutive month in October as employers confronted disruptions from the federal government shutdown, rising prices and continued uncertainty about tariffs.

The Associated Industries of Massachusetts Business Confidence Index (BCI) declined one point to 46.5 on a 100-point scale. It marked the eighth consecutive month that the Index remained below the 50-reading separating optimism from pessimism.

The October index was nine points less than the same month a year ago. The last time the BCI remained in pessimistic territory for eight months was during the COVID-19 pandemic in 2020.

Meanwhile, the federal government shutdown is hindering analysis of the economy since federal agencies have suspended collection and processing of most official statistics.

“The economy remains resilient with the Federal Reserve noting that economic activity ‘has been expanding at a moderate pace.’ At the same time, the labor market is softening – employment has decelerated, and long‐term unemployment has risen. Because the labor market is a major pillar of consumer spending, any sign of widening job losses or weakening wage gains would be a red flag,” said Sara Johnson, Chair of the AIM Board of Economic Advisors (BEA), which oversees the BCI.

Companies that participated in the BCI expressed a variety of views on the business outlook.

“Federal government contracting is decreasing for small business and tariffs are hurting everyone,” wrote one employer.

But another company reported: “October rebounded significantly from a slower September.”

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 mostly lower in October.

The confidence employers maintain in their own operations fell 1.5 points to 50.3. That figure was six points less than in October 2024.

The Massachusetts Index, assessing business conditions within the commonwealth, gained 0.6 point to 43.3, leaving it 10.9 points lower than a year earlier. The US Index measuring conditions throughout the country dropped 1.3 points for the month and 16.2 points for the year.

The Current Index, which assesses overall business conditions at the time of the survey, lost 2.3 points to 46.3. The Future Index predicting conditions six months from now rose 0.2 point to 46.7.

The Manufacturing Index edged down 0.2 point to 45.7, leaving it 4.8 points lower than the year earlier. The Employment Index saw the largest decline for October, shedding 4.1 points to 48.5.

Large companies (52.0) were more confident than medium-sized companies (43.5) and small companies (43.0).

Alan Clayton-Matthews, Professor Emeritus of Economics and Public Policy at Northeastern University and a BEA member, said that the high productivity rate that has traditionally allowed Massachusetts to increase economic output now faces challenges from changes in federal policy.

“Tariffs and reductions in research-and-development spending create issues for productivity while an aging demographic affects labor-force participation and tightening immigration policy affects population,” Clayton-Matthews said.

Investment in Research

AIM President and CEO Brooke Thomson, also a BEA member, recently testified before the Massachusetts Legislature in support of Governor Maura Healey’s proposed DRIVE Act that would invest $400 million to grow Massachusetts’ research and innovation economy.

“The DRIVE legislation sends a strong message that Massachusetts is committed to continuing our path as the global leader in innovation, research and education. DRIVE would also provide much-needed stability for the network of small companies, manufacturers and service providers that form the backbone of the Massachusetts life-sciences miracle,” Thomson said.