Increasingly severe shortages of workers and critical supplies drove Massachusetts business confidence lower for a second consecutive month during September.

The Associated Industries of Massachusetts Business Confidence Index (BCI) declined 3.1 points to 58.9 last month. The Index has now slipped 6.7 points since hitting a three-year high during July, though it remains 12.3 points higher than a year ago and well within optimistic territory.

Employers grew less optimistic about the state and national economies as supply chain issues and hiring challenges increased costs and pressured margins. Confidence was also affected in sometimes contradictory ways by President Biden’s decision to require companies with 100 or more employers to mandate COVID-19 vaccines or regular testing.

“The fundamentals of the economy remain strong. After a 3.4 percent contraction in 2020, global real GDP is projected to increase about 5.5 percent in 2021—its strongest advance since 1973—and 4.5 percent in 2022,” said Sara L. Johnson, Chair of the AIM Board of Economic Advisors and Executive Director of Global Economics at IHS Markit.

“At the same time, materials shortages, shipping delays, a tight labor market, and the ongoing pandemic make it difficult for employers to concentrate on long-term growth.”

Employers say labor shortages in particular are impeding their economic outlook. “We continue to have difficulty hiring, which has led to employee shortages that have caused us to turn work away, reducing our sales, as we continue to see costs and expenses increase like never before. It’s a cycle that feels like it will never end,” wrote one participant in the business confidence survey.

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 Index all moved lower during September.

The confidence employers have in their own companies fell 2.0 points to 60.7, leaving it 12.0 points better than it was a year ago.

The Massachusetts Index assessing business conditions within the commonwealth declined 4.3 points to 60.0, up 15.9 points since September 2020. The US Index measuring conditions nationally shed 5.2 points in September and gained 9.9 points for the year.

The Current Index, which assesses overall business conditions at the time of the survey, lost 3.5 points to 59.7. The Future Index, measuring projections for the economy six months from now, slipped 2.7 points.

Confidence among manufacturing companies decreased 1.4 points to end the month 14.3 points higher than its year-earlier level.

Large companies (60.8) were more bullish than medium-sized companies (57.9) or small companies (56.9). Companies in eastern Massachusetts (63.0) were significantly more confident than those in the western part of the commonwealth (53.0).

The 10-point confidence gap between the eastern and western halves of the commonwealth was larger than usual. Analysts say the difference may have to do with the concentration of growth sectors like biopharmaceuticals in eastern Massachusetts, the severity of the labor shortages in the west and the continued travails of the tourism sector in the Berkshires.

Elmore Alexander, Dean Emeritus of the Ricciardi College of Business, Bridgewater State University and a BEA member, said employers are keeping one eye on inflation and the other on the multi-pronged debates in Washington over the debt ceiling, a $1 trillion infrastructure bill and a larger $3.5 trillion social spending measure that is likely to increase business taxes.

“The infrastructure bill has largely generated support from the business community, which depends upon functioning roads, bridges and broadband internet. But the larger bill has been more controversial, with Democratic centrists saying they will only support a more modest initiative,” Alexander said.

COVID-19 Controversy

AIM President and CEO John R. Regan, also a BEA member, said the survey makes clear that the stark divisions among Americans about masks and vaccines also permeate the business community. He noted that hundreds of AIM member employers have participated in weekly virtual discussions in an effort to understand the details of the new federal vaccine/testing mandate.

“One survey participant was a business owner who said his company would close its doors before requiring employees to be vaccinated. Another CEO said she was happy to see mandates coming and that employers should follow the science.,” Regan said.

“Such disagreements and uncertainty are contributing to the drop in confidence.”