Business Confidence Steady Prior to Market Gyrations

Explore AIM's New Introductory Limited Membership for First Time Members

Business Confidence Steady Prior to Market Gyrations

Economy News | March 10, 2020
By: Chris Geehern

Business confidence remained steady in Massachusetts during February in a survey taken mostly prior to the month-end market gyrations touched off by COVID-19.

The Associated Industries of Massachusetts Business Confidence Index (BCI) fell 0.2 points last month to 62.1. The reading was 3.9 points higher than a year ago and well within optimistic territory.

February confidence reflected weakening employer views about conditions six months out and about prospects for their own companies. Those indicators are likely to fall again in March as companies factor in the potential effect of COVID-19 on profitability, employee productivity and travel policies.

“The underlying indicators of the US and Massachusetts economies remain strong, but fallout from COVID-19 introduces a huge amount of uncertainty into the economic picture,” said Raymond G. Torto, professor at the Harvard Graduate School of Design and Chair of AIM’s Board of Economic Advisors.

The AIM Index, based on a survey of more than 100 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.

The Index has remained above 50 since October 2013.

Constituent Indicators

The constituent indicators that make up the Business Confidence Index were mixed during February.

The Massachusetts Index assessing business conditions within the commonwealth fell 0.4 points to 65.8, leaving it 5.0 points higher than in February 2019. The US Index was virtually flat, rising 0.1 points to 60.9.

The Future Index, measuring expectations for six months out, declined 1.0 point to 61.8, a year-over-year gain of 3.0 points. The Current Index, which assesses overall business conditions at the time of the survey, gained 0.5 points to 62.4

The Employment Index was up 0.2 points in February and 2.9 points for the year. The Employment Index continues to lag the overall business confidence reading amid a persistent shortage of workers that may become more pronounced as large number of baby boomers retire.

Non-manufacturers (62.8) were more confident than manufacturing companies (61.4). Large companies (66.3) were more optimistic than medium-sized (61.4) or small (56.3) companies. Companies in eastern Massachusetts (63.4) were more optimistic than those in the west (59.9).

Edward H. Pendergast, Managing Director, Dunn Rush & Co., a BEA member, noted that confidence among small businesses dropped from 63.0 in January to 56.3 in February, leaving the reading a full point lower than it was 12 months ago.

“Business formation and entrepreneurial activity remain strong in Massachusetts, yet owners of small companies are less optimistic about their prospects than they have been. It will be an interesting measure to watch as the year progresses,” Pendergast said.

Tax Timing

AIM President and CEO John R. Regan, also BEA member, said the Massachusetts economy has reached a turning point as lawmakers debate raising taxes to pay for transportation infrastructure improvement.

The state House of Representatives last week passed a $600 million transportation financing bill that would increase the gasoline tax and established a tiered minimum corporate tax.

“AIM believes that any transportation financing source should have some nexus to transportation and the change in corporate minimum tax lacks that nexus,” Regan said.

“We support policies and responsible new investment to reduce congestion, grow capacity to deliver capital projects, lower carbon emissions in the transportation sector and ensure accountability and transparency in transportation investment spending.”

Follow by Email