Massachusetts employers turned pessimistic about the economy for the first time since December 2020 last month as the state economy slowed to a crawl and the Federal Reserve continued to raise interest rates.

Massachusetts

The Associated Industries of Massachusetts Business Confidence Index (BCI) lost half a point to 49.6 in May, just below the 50 mark that separates optimistic from pessimistic outlooks. Confidence ended the month 5.1 points lower than a year earlier.

The survey was largely completed before President Joe Biden and House Speaker Kevin McCarthy struck a deal to raise the nation’s debt ceiling and avert a US default.

“MassBenchmarks reports that the Massachusetts economy was essentially flat in the first quarter, growing at a 0.1 percent annual rate versus 1.1 percent for the nation. Employer confidence is reflecting that slowdown,” said Alan Clayton-Matthews, Professor Emeritus of Economics and Public Policy at Northeastern University “At the same time, payroll employment remained strong in the first quarter and unemployment rates remained low at 3.3 percent in April.”

Participants in the Business Confidence Index Survey expressed divergent views about the future.

“Quotes and leads are definitely slowing down from the frenzy of early 2021 but it feels more like we are going into a depression. Machine shops historically are the first to feel the slowdown in manufacturing. We are preparing to batten down the hatches,” wrote one Merrimack Valley manufacturer.

But another employer said: “Interest-rate hikes and the mini-banking crisis has not significantly slowed down construction. Hiring is somewhat easier, but the gap in trade skills is still significant.”

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, rose slightly from 50.3 to 50.4. The North Shore Confidence Index, conducted with the North Shore Chamber of Commerce, increased from 48.2 to 50.5. The Western Massachusetts Business Confidence Index, developed in collaboration with the Springfield Regional Chamber of Commerce, fell to 45.7.

Constituent Indicators 

The constituent indicators that make up the Index were mostly lower in May.

The confidence employers have in their own companies fell 1.4 points to 51.8, ending the month 6.8 points below May 2022.

Massachusetts

The Massachusetts Index assessing business conditions within the Commonwealth rose 1.1 points to 49.7, down 4.1 from a year earlier. The US Index measuring conditions throughout the country gained 0.2 points to 42.6, remaining in pessimistic territory for an eighth consecutive month.

The Current Index, which assesses overall business conditions at the time of the survey, fell 0.2 points to 51.3. The Future Index, measuring projections for the economy six months from now, lost 1.0 point to end the month at 47.8.

The Manufacturing Index dropped 2.2 points to 46.5, leaving it 8.0 points lower than a year ago. Confidence among non-manufacturing companies was up 0.7 points to 51.8.

The Employment Index fell 0.8 points to 50.8.

Large companies (50.8) were slightly more optimistic than medium-sized companies (50.2) and small companies (48.9).

Michael A. Tyler, CFA, Chief Investment Officer at Eastern Bank Wealth Management and Vice Chair of the BEA, noted, “Businesses have been stung by both stubbornly high inflation and persistently high interest rates, which have dampened demand and raised costs. It’s unfortunately not surprising that the Future Index indicates that business leaders expect these conditions to worsen further. Thankfully, a possible recession would likely be shallow and short, cushioned by a strong jobs market and healthy consumer spending.”

Debt Ceiling

AIM President and CEO John R. Regan, a BEA member, said employers will likely be encouraged in coming months by the ability of Congress and the White House to reach an agreement on raising the debt ceiling.

“The President and Congress did the right thing in hammering out an agreement that will maintain the stability of the global financial system. Employers need all the predictability they can get as the economy continues to slow down,” Regan said.

Massachusetts

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.  Several 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