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Archived: Business Confidence Falls for Third Consecutive Month

Posted on September 6, 2016

Confidence among Massachusetts employers fell for a third consecutive month during August as companies remained uncertain about the vigor and durability of the economic recovery.

BCI.August.2016.jpgThe Associated Industries of Massachusetts Business Confidence Index (BCI) declined one point to 54.1 last month, leaving it three full points lower than in August 2015. The confidence reading remained above the 50 mark that denotes an overall positive economic outlook, but optimism dimmed sharply on current economic conditions and employers’ outlook on their own companies.

The employer confidence readings are consistent with a recent weakening of consumer confidence in Massachusetts. The Mass Insight Consumer Confidence Index slid 10 points during the third quarter.

“The national and state economies continue to improve, but without the kind of momentum we have seen in previous recoveries. So employers remain confident overall, but circumspect,” said Raymond G. Torto, Chair of AIM’s Board of Economic Advisors (BEA) and Lecturer, Harvard Graduate School of Design.

“One potential red flag is the degree to which employer confidence in their own companies has weakened during the past several months.”

The AIM Index, based on a survey of 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.

The sub-indices based on selected questions or categories of employer were mixed during August.

The Massachusetts Index, assessing business conditions within the commonwealth, rose 0.1 points during the month and 0.6 points over the year to 57.3. The U.S. Index of national business conditions, in contrast, dropped 0.7 points into pessimistic territory at 49.6 ” 1.1 points lower than its level of a year ago.

Employers have been more optimistic about the Massachusetts economy than about the national economy for 76 consecutive months.

The Current Index, which assesses overall business conditions at the time of the survey, plunged 1.9 points to 53.4 while the Future Index, measuring expectations for six months out, rose 0.1 points to 54.89

The three sub-indices bearing on survey respondents’ own operations were also mixed.

The Company Index, reflecting overall business conditions, fell 1.3 points to 54.6, while the Sales Index lost 1.3 points to 54.3. The Employment Index managed a 0.1-point increase to 52.6.

The AIM survey found that nearly 39 percent of respondents reported adding staff during the past six months while 19 percent reduced employment. Expectations for the next six months were stable ” 37 percent hiring and only 10 percent downsizing.

“Employer assessments of their own prospects and of current conditions have declined 4.8 points during the past 12 months and that is cause for some concern. The good news is that while employers’ beliefs about future conditions are also declining, they are more bullish about future conditions than present ones,” said Katherine A. Kiel, Ph.D., Professor of Economics, College of the Holy Cross, and a BEA member.

Non-manufacturing companies continued to enjoy a significantly brighter outlook at 57.4 than manufacturing employers, who posted an overall confidence level of 51.2. One surprising development was that confidence levels that normally run higher in Great Boston than in the rest of the commonwealth were the same statewide during August at 54.3.

AIM’s President and CEO Richard C. Lord, a BEA member, called upon the two major presidential candidates to address the fragile nature of the economic recovery and offer specific plans for long-term economic expansion.

“The August Business Confidence Index is really a statement that employers are seeking leadership from the state and federal governments on issues like trade, taxes and economic growth,” Lord said.

“The election of the president and members of Congress is about the economic future of the nation and the ability of employers to create jobs and opportunity for people who need them.”