Resurgent COVID-19 disruptions, persistent supply chain issues and a slowing state economy pushed confidence among Massachusetts employers to a 10-month low at the end of 2021.

The Associated Industries of Massachusetts Business Confidence Index (BCI) declined 1.2 points to 56.7 in December. The Index remains within optimistic territory, 7.4 points better than a year ago, but has now declined for five consecutive months.

Employers remain upbeat about the fundamental strength of the economy, but their confidence is muted by the evolving public-health crisis, rising prices and a structural labor shortage.

The December Business Confidence Index featured the creation of a second regional confidence index, this one for the area north of Boston. The North-of-Boston Confidence Index, developed by AIM in partnership with the North Shore Chamber of Commerce, posted an inaugural reading of 57.8.

The Central Massachusetts Confidence Index rose from 56.3 in November to 59.8 in December.

“The December Business Confidence Index reflects companies attempting to maintain operations and grow business amid the sudden spread of the Omicron variant of COVID-19. Travel, health care, hospitality and other service industries began to experience increased employee absences in an already tight labor market,” said Sara L. Johnson, Chair of the AIM Board of Economic Advisors and Executive Director of Global Economics at IHS Markit.

Inflation remains a major concern for Massachusetts companies.

“Our inability to predict where material costs will be 3-6 months from now is a terrible burden on our business and our bottom line,” wrote on survey participant.

The Massachusetts economy, which grew at a 6.1 percent annual clip during the first quarter of 2021 and 8.0 percent during the second quarter, slowed to a 2.0 percent annual growth rate during the July-September period, according to MassBenchmarks.

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.

Constituent Indicators

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

The confidence employers have in their own companies slid 1.2 points to 59.9, leaving it 6.8 points better than it was a year ago.

The Massachusetts Index assessing business conditions within the Commonwealth declined 1.7 points to 55.6, up 7.2 points since December 2020. The US Index measuring conditions nationally shed 0.9 points in December to remain in pessimistic territory at 47.9.

The Current Index, which assesses overall business conditions at the time of the survey, lost 1.6 points to 56.1. The Future Index, measuring projections for the economy six months from now, declined 0.8 points to 57.3

The Manufacturing Index was the only indicator to rise during the month, gaining 2.1 points to 55.3. The Employment Index lost 0.6 points to 55.6.

Medium-sized companies (58.9) were more bullish than large companies (57.5) or small companies (53.5).

Katherine A. Kiel, Professor of Economics at the College of the Holy Cross and a BEA member, said that companies are struggling to budget for 2022 because inflation has reached at a 30-year high of 6.8 percent nationally.

“Commodity prices remain volatile and companies report that supply chain delays on key components continue to slow project schedules. Wage inflation is also playing a role as employers work hard to hire and retain qualified workers across a range of industries,” Kiel said.

Hope and Uncertainty

AIM President and CEO John R. Regan, also a BEA member, said employers remain fundamentally optimistic about the economy at a time of both extraordinary hope and unprecedented uncertainty.

“We face an ever-mutating public health crisis, a generational shortage of qualified workers, supply chain disruptions, the highest inflation since the early 1990s and shifting expectations about the nature of work itself,” Regan said.

“Despite these challenges, however, many Massachusetts companies and their employees are finding ways to thrive. Many members of the Associated Industries of Massachusetts (AIM) Board of Directors tell me their companies posted record results in both 2020 and 2021. And Massachusetts employers have created 519,500 jobs since the employment trough in April 2020, boosting the labor-force participation rate from 60.4 percent to 66.3 percent. “