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Business Confidence Index Reflects Persistent Uncertainty

Posted on March 5, 2013

Massachusetts employers continue to reflect the uncertainty surrounding the political and economic environment both in the Bay State and throughout the country.

The Associated Industries of Massachusetts Business Confidence Index during the past 12 months paints an unmistakable picture of meandering business confidence amid fiscal cliffs, sequestrations and economic weakness in Europe. Employer confidence has revolved closely around the 50-point mark of the index that separates optimism from pessimism, varying less than a point from June 2012 to last month.

The Index shed 1.4 points in February to 49.0, tipping from barely positive to slightly negative. Confidence was down 5.9 points from February 2012.

“We saw a marginal uptick in the assessment of national conditions coming off of January’s federal tax agreement, but otherwise the numbers were down a little across the board,” said Raymond G. Torto, Global Chief Economist at CB Richard Ellis Group, Inc. and Chair of AIM’s Board of Economic Advisors (BEA).

With sequestration becoming increasingly certain over the course of the month, federal budget cuts will have a significant impact on Massachusetts, Torto noted.

“Government programs and employment at all levels will take a hit, but our state has disproportionate exposure in the private sector. Defense contractors are already feeling spending reductions, and higher education and health care are bracing for cuts ” these are very important components of our state’s economy,” he said.

“Meanwhile, key export markets in Europe are in or on the edge of recession. Everyone is aware of the commonwealth’s own fiscal challenges, and of the governor’s very ambitious budget and tax proposals. Although these are by no means ‘doom and gloom’ survey results, they reflect a very unsettled situation for businesses.” 

The AIM Index, which has appeared since July 1991, 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 three of the company-related sub-indices registered losses in February. The broad Company Index fell 1.9 points to 52.6, the Sales Index lost 1.2 to 54.0, and the Employment Index shed 1.1 to 51.2.

“An atmosphere of uncertainty reduces employers’ confidence in their ability to manage their own operations effectively,” said Professor Michael Goodman of the University of Massachusetts Dartmouth, a BEA member.

“We are all concerned about job creation, and here the readings are barely positive: for the past six months 27 percent of respondents reported adding staff while 24 percent reduced, and for the next period 19 percent plan to add personnel while 16 percent foresee reductions ” with 65 percent expecting to stand pat, another indication of uncertainty.”

The January tax agreement between President Barack Obama and the Congress boosted employer confidence in the national economy, but not enough to surpass the outlook for Massachusetts. The state reading declined 1.8 points to 45.4, while confidence in the national economy rose to 42.0. There has been only one month in the past five years ” May 2009 ” when the Massachusetts Index was not above the U.S. Index.”

The Current Index, assessing overall business conditions at the time of the survey, dropped 1.5 points in February to 47.4, while the Future Index, measuring expectations for six months out, lost 1.2 to 50.7.