COVID, Worker Shortages Dampen Business Confidence
| September 6, 2021
By: Chris Geehern
Resurgent COVID-19 cases, persistent worker shortages and supply chain disruptions combined to dampen business confidence in Massachusetts during August.
The Associated Industries of Massachusetts Business Confidence Index (BCI) declined 3.6 points to 62.0 after hitting a three-year high during July. The BCI remains 16 points higher than a year ago.
Employers grew less optimistic last month about everything from their own companies to the state and national economies. Confidence among manufacturing companies declined for the first time this year as companies faced the twin challenges of surging prices and shortages of key raw materials.
The report came as hiring nationally slowed sharply during August to 235,000 jobs.
“Business owners and managers remain solidly optimistic overall, but express growing concern as COVID-19 cases increase both in Massachusetts and globally,” said Sara L. Johnson, Chair of the AIM Board of Economic Advisors and Executive Director of Global Economics at IHS Markit.
“Everyone from manufacturers to retailers is struggling to provide product amid renewed pandemic-containment measures and critical shortages of labor and materials.”
Employers say supply chain issues have become a drag on an otherwise solid economy.
“The supply chain lead-times are killing our ability to drive business in the short-term. Trying to get key supplies on a container is impossible so our costs keep going up due to having to airfreight parts in,” wrote one employer.
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.
The constituent indicators that make up the Business Confidence Index all moved lower during August.
The confidence employers have in their own companies fell 5.0 points to 62.7, leaving it 13.7 points better than it was during the pandemic a year ago.
The Massachusetts Index assessing business conditions within the commonwealth declined 1.7 points to 64.3, up 18.2 points since August 2020. The US Index measuring conditions nationally shed 1.3 points in August and gained 19.3 points for the year.
The Current Index, which assesses overall business conditions at the time of the survey, lost 3.4 points to 63.2. The Future Index, measuring projections for the economy six months from now, slipped 3.9 points.
Confidence among manufacturing companies decreased 4.2 points to end the month 13.8 points higher than its year-earlier level.
Large companies (64.3) were more bullish than medium-sized companies (62.5) or small companies (58.8). Companies in eastern Massachusetts (65.8) were significantly more confident than those in the western part of the commonwealth (59.2).
Edward H. Pendergast, Managing Director of Dunn Rush & Co. and a BEA member, said the fundamentals of the Massachusetts economy remain strong – new businesses are forming at a rapid pace and employers created 43,400 jobs throughout the commonwealth during July.
“The August confidence numbers reflect the fact that employers are balancing a multitude of uncertainties, ranging from decisions about whether or not to require employees to be vaccinated to finding qualified workers. The central uncertainty, of course, remains the future course of the pandemic itself,” Pendergast said.
AIM President and CEO John R. Regan, also a BEA member, said the uptick in COVID-19 cases is affecting important business decisions, such as when companies that have been operating remotely intend to re-open their offices.
AIM-member Google, with nearly 2,000 employees in Massachusetts, said recently that it will move its office reopening to mid-October from September. Insurer John Hancock will not require workers to return to the office until January, and then under a hybrid work schedule. Boston-based State Street Corporation announced that it will vacate its two New York City office locations.
“Everyone hopes that the effects of the Delta variant will subside before the economy loses any of the momentum it has established since the beginning of 2021,” Regan said.