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Business Confidence Dips at the End of 2022

Posted on January 9, 2023

Massachusetts employers ended a see-saw 2022 less confident in the economy than 12 months earlier, but nevertheless optimistic about their prospects in 2023.

The Associated Industries of Massachusetts Business Confidence Index (BCI) lost 4.7 points to 54.0 during December, giving up part of a large increase posted in November.  The Index ended the year 2.7 points lower than its level of December 2021.

Employers remain concerned that efforts by central banks to moderate inflation by raising interest rates will slow the economy, perhaps into recession. At the same time, labor remains in tight supply with many employers continuing to struggle to hire and retain employees.

“The path to 2 percent inflation will inevitably be painful. Most economists forecast a recession in the first half of 2023, led by declines in residential investment, commercial construction, inventory investment, and consumer spending on goods,” said Sara L. Johnson, Chair of the AIM Board of Economic Advisors.

Participants in the Business Confidence Index Survey reflected the shift in concern from rising prices to slowing growth.

“I anticipate a recession in the second half of 2023, just beyond the six-month window of the survey,” 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 Central Massachusetts Business Confidence Index, conducted with the Worcester Regional Chamber of Commerce, fell from 53.4 in November to 52.8 last month. The North Shore Confidence Index, conducted with the North Shore Chamber of Commerce, declined from 60.4 to 56.7.

Constituent Indicators 

The constituent indicators that make up the Index were uniformly lower during December.

The confidence employers have in their own companies fell 5.6 points to 57.2, ending the month 2.7 points below December 2021.

The Massachusetts Index assessing business conditions within the Commonwealth declined 3.6 points to 52.6, down 3.0 points from a year earlier. The US Index measuring conditions throughout the country lost 2.4 points to 46.2 to remain in pessimistic territory for the third consecutive month.

The Current Index, which assesses overall business conditions at the time of the survey, fell 5.0 points to 55.7. The Future Index, measuring projections for the economy six months from now, lost 4.2 points to end the month at 52.4.

The Manufacturing Index declined 1.0 point to 55.3 compared to a 53.5 reading among non-manufacturing companies.

The Employment Index lost 2.8 points to 55.7 as employers continued to scour a tight labor market for qualified workers.

Medium-sized companies (56.1) were more optimistic than large companies (53.8) or small companies (51.1).

Nada Sanders, Distinguished Professor of Supply Chain Management, Northeastern University, said the global supply chain interruptions that have exacerbated inflation are slowly easing.

“With financial conditions tightening, a deceleration in goods demand is enabling supply to catch up, relieving bottlenecks. Earlier fears of component shortages led to an inventory build-up that can now be strategically scaled back. The rebalancing of supply and demand has relieved congestion at ports and brought down shipping rates. Nevertheless, caution is needed as many potential supply chain interruptions remain on the horizon,” Sanders said.

A Year of Challenge

AIM President and CEO John R. Regan, also a BEA member, said employer confidence varied widely during 2022 as the Federal Reserve attempted to harness inflation without sending the economy into recession.

“It was a year in which employers faced a multitude of challenges, from untangling supply systems and managing labor costs to retaining workers and processing new patterns of post-COVID customer behavior,” Regan said.

“The good news is that Massachusetts remains well positioned as a global center of technology and commerce and should be able to ride out an economic slowdown better than most states.”

The monthly Business Confidence Index, initiated by AIM’s Board of Economic Advisors in July 1991, is based on a survey of AIM member companies across Massachusetts, asking questions about current and prospective business conditions in the state and nation, as well as for respondents’ own operations. On the Index’s 100-point scale, a reading above 50 indicates that the state’s employer community is predominantly optimistic, while a reading below 50 points to a negative assessment of business conditions.  A number of component sub-indices are derived by analyzing responses to selected questions or those of groups of respondents.

Media Contacts:

Sara L. Johnson (Chair), 781-367-0587
Michael A. Tyler, CFA, (Vice Chair) Chief Investment Officer, Eastern Bank Wealth Management 617-897-1122

Marcelo Suarez-Orozco, Chancellor, University of Massachusetts, Boston (617) 287-6800
Alan Clayton-Matthews, Ph.D., Professor Emeritus of Economics & Public Policy, Northeastern University; Senior Contributing Editor, MassBenchmarks (617) 512-6224
Edward H. Pendergast, Managing Director, Dunn Rush & Co., 617-451-0001
Elmore Alexander, Dean Emeritus, Ricciardi College of Business, Bridgewater State University, 267-980-4652
Nada Sanders, Distinguished Professor of Supply Chain Management, Northeastern University, 614-284-3908
Michael D. Goodman, Ph.D., Professor of Public Policy, UMass Dartmouth 617-823-2770
Katherine A. Kiel, Ph.D., Professor of Economics, College of the Holy Cross 508-793-2743
Suzanne Dwyer, President, Massachusetts Capital Resource Company 617-536-8251
Jim Sibley, Regional Commissioner, Bureau of Labor Statistics
Barry Bluestone, Ph.D., Professor of Public Policy and Urban Affairs (retired), Northeastern University 617-899-9300
Raymond G. Torto (Emeritus), Ph.D., CRE, Harvard Graduate School of Design 617-930-6625
John R. Regan, President, Associated Industries of Massachusetts 617-262-1180
Christopher Geehern, Executive Vice President, Public Affairs and Communication, Associated Industries of Massachusetts 617-834-4414, @aimbusinessnews