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Archived: Business Confidence Holds Steady; Manufacturing Outlook Dims

Posted on October 8, 2019

Business confidence remained essentially flat in Massachusetts during September despite a darkening outlook among manufacturers.

BCI.September.2019The Associated Industries of Massachusetts Business Confidence Index (BCI) rose 0.2 points to 58.9 last month after retreating in August. The Index has lost 3.7 points since September 2018 but remains within optimistic territory.

The September reading was weighed down by weakening sentiment among Bay State manufacturers. The Index’s manufacturing component dropped 2.4 points in September and 7.9 points for the year.

The results mirrored the national Institute for Supply Management’s manufacturing index, which fell to its lowest level since 2009 last month. A separate report by IHS Markit showed that the manufacturing sector suffered its worst quarter since 2009, though activity increased during September.

“Manufacturers are bearing the brunt of both actual and threatened tariffs against goods imported from China. Many Massachusetts companies have also become caught in retaliatory tariffs and are seeing significant weakening of their overseas business,” said Raymond G. Torto, Chair of AIM’s Board of Economic Advisors (BEA).

The AIM Index, based on a survey of more than 100 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.

Constituent Indicators

The constituent indicators that make up the AIM BCI were mixed during September.

The Massachusetts Index assessing business conditions within the commonwealth fell 0.6 points to 63.3 while the US Index rose to 56.5. The Massachusetts reading has decreased 1.2 points and the US reading 7.1 points during the past 12 months.

The Future Index, measuring expectations for six months out, lost 0.5 points to 56.4, leaving it 4.4 points lower than a year ago. The Current Index, which assesses overall business conditions at the time of the survey, increased 0.8 points to 61.3 ÔøΩÔøΩÔøΩ 3.0 points lower than its reading of September 2018.

The Employment Index rose a point for the month but remained down 3.1 points for the year. Employers continue to struggle to find qualified workers in a full-employment state economy.

Non-manufacturers (61.9) were more confident than manufacturers (55.4). Large companies (60.2) were more optimistic than medium-sized companies (59.9) or small companies (55.4), reversing a trend established during the summer. Companies in Eastern Massachusetts (62.6) continued to be more optimistic than those in the west (53.8).

Michael A. Tyler, CFA, Chief Investment Officer at Eastern Bank Wealth Management, and a BEA member, said the gaps in confidence between manufacturing companies and other businesses, and between companies in different regions of the commonwealth, appear to be growing.

“Manufacturing has been hit by the steady increase in tariffs imposed by the United States, China and other nations since 2018. The World Trade Organization estimates that the flow of goods across borders will increase by just 1.2 percent this year and manufacturing companies are feeling that downdraft,” Tyler said.

Business Battens the Hatches

AIM President and CEO John R. Regan, also BEA member, said a separate survey shows that two-thirds of AIM-member employers expect an economic contraction between now and the end of 2020. Companies are preparing for a possible slowdown by hiring fewer people, paying down debt and limiting capital expenditures.

“A possible take-away from the survey for state policymakers as they begin considering billions of dollars in new spending is this could be a difficult time ahead for the state economy,” Regan said.

“Businesses are assuming a defensive posture and significant tax increases – beyond the $1 billion for the new paid family and medical leave system – even for worthwhile causes, could harm the overall economy, most especially the manufacturing sector.”