Business confidence remained essentially flat during February as employers attempted to gauge whether inflation, recession, growth or labor shortages would dominate the Massachusetts economy in 2023.

The Associated Industries of Massachusetts Business Confidence Index (BCI) gained 0.3 points to 53.5 last month, halting a two-month slide. The confidence level was 3.2 points lower than a year ago but still in optimistic territory.

Employer sentiment continues to be driven by a swirl of often contradictory economic signals. Leading indicators suggest that economic growth will decelerate during 2023, yet the state and national economies continue to exhibit a strong labor market, low unemployment, and a persistently high rate of inflation.

In January, the Federal Reserve’s preferred inflation gauge rose at its fastest monthly pace since June, a sign that price pressures remain entrenched in the U.S. economy to a degree that could lead the Fed to keep raising interest rates well into this year.

“The personal consumption expenditures price index rose 0.6% month-on-month and 5.4% year-on-year (y/y) in January. While that is down from a rate of 7.0% y/y in June 2022, inflation is still far above the Fed’s 2% target,” said Sara L. Johnson, Chair of the AIM Board of Economic Advisors.  “The persistent shortage of workers across virtually all industries is maintaining upward pressure on wages and services prices.”

Participants in the Business Confidence Index Survey reflected the often-contradictory signals being given off by the economy.

“We see labor shortages, inflation, and industrial inventory de-stocking following last year’s supply chain panic- buying behavior,” wrote one manufacturing company owner.

Another company commented: “Work is steady. New projects were slower the last six months of 2022, but have picked up significantly in the beginning of 2023.”

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, increased to 54.0 from 52.5 in January. The North Shore Confidence Index, conducted with the North Shore Chamber of Commerce, remained unchanged at 55.6.

Constituent Indicators 

The constituent indicators that make up the Index were mixed during February.

The confidence employers have in their own companies fell 0.8 points to 55.7, ending the month 2.9 points below February 2022.

The Massachusetts Index assessing business conditions within the Commonwealth jumped 3.2 points to 53.4, still down 4.3 points from a year earlier. The US Index measuring conditions throughout the country gained 0.4 points to 47.1 for its fifth consecutive month in pessimistic territory.

The Current Index, which assesses overall business conditions at the time of the survey, fell 1.1 points to 54.5. The Future Index, measuring projections for the economy six months from now, gained 1.6 points to end the month at 52.5.

The Manufacturing Index tumbled 1.3 points to enter pessimistic range at 49.5. Confidence among non-manufacturing companies rose to 56.1.

The Employment Index edged down 1.2 points to 55.1 as companies continued to scour a tight labor market for qualified workers.

Small companies (54.8) were slightly more optimistic than large companies (54.3) or medium-sized companies (51.0).

Katherine A. Kiel, Professor of Economics at the College of the Holy Cross and a BEA member, said the economy continues to defy predictions of a recession.

“Consumer spending remains strong nationally and the job market is still historically tight – Massachusetts payroll employment grew at an annual rate of 4.2 percent in the fourth quarter. At the same time, the fact that confidence among Massachusetts manufacturing companies has fallen into pessimistic territory is a matter of concern,” Kiel said.

Welcome Tax Relief

AIM President and CEO John R. Regan, also a BEA member, said the $859 million tax-relief proposal announced last week Governor Maura Healey represents a positive step toward making Massachusetts more affordable and competitive.

“At a time when the cost of living in Massachusetts exceeds most other states, this package wisely identifies ways to help residents cut costs, reducing the financial burden on working families, while at the same time implementing tax changes that prevent Massachusetts from being an outlier,” Regan said.

“Based on this budget, it is clear that the Administration shares AIM’s concerns about the Commonwealth’s competitive future and this is a critical first step towards ensuring sustained growth and economic strength.”

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