The Associated Industries of Massachusetts Business Confidence Index recorded the largest monthly drop in its history during March as the COVID-19 pandemic unraveled the global economy.

Confidence dropped 21.9 points to 40.2 on a 100-point scale, moving the reading into pessimistic territory for the first time since October 2013. The largest monthly decline in confidence prior to last month took place in October 1998, when the BCI dropped 9.6 points.
Business confidence in Massachusetts now stands 19.1 points below its level of March 2019 and just seven points higher than its nadir during the recession of 2009.

The confidence decline reflects the continued idling of vast swaths of the global economy as health officials work to stem to spread of the novel coronavirus. Members of the AIM Board of Economic Advisors say the March results are not surprising at a time when experts believe the United States economy will contract by more than 5 percent in 2020.

“The unprecedented one-month erosion of business confidence represents the unique set of circumstances that have changed almost every aspect of life during the past month,” said Raymond G. Torto, professor at the Harvard Graduate School of Design Chair of the Board of Economic Advisors.

“Massachusetts companies are trying to map out their futures in the face of government orders to cease operations and the uncertainty of forces beyond the scope of traditional economic models.”

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 Business Confidence Index were all down.

The Massachusetts Index assessing business conditions within the commonwealth fell 29.5 points to 36.3, leaving it 25.4 points lower than in February 2019. The US Index lost 20 points to 31.9

The Future Index, measuring expectations for six months out, declined 18.1 points to 43.7, a year-over-year slide of 24.6 points. The Current Index, which assesses overall business conditions at the time of the survey, lost 25.8 points to 36.6.

The Employment Index was down 12.2 points in March and 10.5 points for the year. The Employment Index had lagged the overall business confidence reading for several years amid a persistent shortage of workers.

Members of the AIM Board of Economic Advisors provided perspective and commentary on the historic confidence report. Their comments follow in full:

“I think it’s a mistake to think of the fiscal response as a ‘stimulus’ when it’s just an emergency ‘relief’ lifeline. The thread tying its various elements together is simply ensuring that a health crisis doesn’t turn into a financial crisis as we saw in 2008. Getting money into people’s hands is good if it helps them pay rent and buy groceries; getting SBA and ‘bailout’ money into companies’ coffers is good if it helps them keep people on the payroll; backstopping bank loans is good if it helps them alter loan terms without causing a run on their capital. But that’s all it is, just a crisis-aversion lifeline.

“The epidemic will most likely fade through the spring and summer months because of weather and social distancing, and the health care system will gradually ramp up its treatment capabilities in the meantime. That makes April (and possibly May) the months of maximum adverse impact.

If my hypothesis above holds, we’re in for a historically bad 2Q GDP but a slow recovery in 3Q and gaining momentum by 4Q. The challenge is to avoid permanent damage from a temporary interruption.”

Michael Tyler
Chief Investment Officer, Eastern Bank Wealth Management

“While the $2.2 trillion stimulus package is critical to help working families and small business, it unfortunately can do little to prevent a massive decline in GDP or an equally massive increase in unemployment. The reason is simple. An economic stimulus only works if money actually gets into circulation.

“The money households receive under the stimulus will be used to pay rent and mortgage and car payments … and to buy some necessities. The money small businesses will get will help some of them to do the same. But with most businesses shuttered and travel restricted, very little of the stimulus will be used to buy the normal goods and services people buy during normal times. Some of the money will be saved and the rest will have a multiplier close to zero. The rent checks will stay in landlord’s bank accounts and the mortgage and car payments will stay in bank vaults, but none of this creates actual jobs.

“So, I don’t think there is any chance for the economy to recover very much until the virus itself is under full control … and that is now at least three to six months away. The slow response by the federal government to the original outbreak is responsible for the length we will have to endure this tragedy. No matter how much it spends now on stimulus cannot make up for that response delay.”

Barry Bluestone
Russell B. and Andree B. Stearns Trustee Professor Emeritus
Northeastern University

“I believe the economy will not recover for at least six months. The coronavirus will be with us for a long time but, by June, we may be able to ease the shelter in place suggestions. It will take at least three more months for the economy to roll. My guess, and it is really a guess because no one really knows, is by September you may see the start of a rebound.”

Edward H. Pendergast
Managing Director, Dunn Rush & Co

“I agree that the CARES Act is more like disaster relief than economic stimulus. I anticipate a substantial and lingering negative impact on the ‘eds and meds’ that have been the backbone of the state economy for decades.

“The recently announced refunds for student housing (those funds cover fixed not variable costs) are going to really hurt public higher ed institutions and the cancellation of elective procedures at hospitals blows a large hole in a major revenue source for our region’s hospitals. I hope I am wrong but positive momentum in Q4 feels like wishful thinking to me at this point. “

Michael D. Goodman, Ph.D.
Professor of Public Policy, University of Massachusetts Dartmouth

“This is unlike any recession we have experienced, and so economic projections can’t be made with the usual level of confidence (which is not usually great anyway). I agree that the stimulus bill won’t result in stimulating the economy; rather it is meant to keep households and businesses intact while the economy is shut down. In that sense it will provide a floor to the downturn if it is successful.

“Even big universities will be hit hard if students can’t or won’t come back to campuses in the fall. Several sectors such as tourism and travel are likely to lag when the pandemic is over; and the loss of income during the pandemic may keep the economy from ‘bouncing back’ quickly when the pandemic is over – it’s not like there will be a pool of savings supporting pent-up demand like there was after WWII.

“With respect to last week’s initial unemployment claims, that corresponds to a state unemployment rate of roughly 10 percent. Maybe less if employment picks up in essential supply sectors. The official payroll employment and labor force/unemployment impacts will not be seen until May when the reports for April are available. This is because the reference week for March was before the shutdown took force here.

Alan Clayton-Matthews
School of Public Policy and Department of Economics, Northeastern University

“I have faith we will get through this. We have been hit by the economic equivalent of a tsunami. One day we are living in a thriving economy, the next day we are hit by a mysterious virus that brings commerce to a dead stop. During the next few months, we are at war with an insidious enemy. The pain and suffering will not be shared equally. We must be mindful to protect and support those most affected. By working together, individuals, businesses, local communities, state government and health-care providers, we can minimize the damage to our way of life. The waters from the tsunami always recede, the virus will be cured, and the economy will thrive again.”

Paul Bolger
President, Massachusetts Capital Resource Company

“If recovery has to wait for a vaccine, recovery might not start until this time next year. The optimistic element is that the overall economy is in much better shape than it was in 2007-2008-2009—the banks are in much better shape as well. I think that this will mean a much quicker recovery once we make the economic turn. Higher education (especially small colleges) is not in good financial health. Small colleges could be the Leman Brothers of this recession. New England will be particularly hard hit by the pain that small colleges suffer.”

Elmore Alexander
Dean Emeritus, Ricciardi College of Business
Bridgewater State University

“We are certainly in unprecedented times and there is a lot of speculation as to what may or may not occur. Suffice to say we will be facing a very difficult time for at least the next three months, with reverberations possibly occurring for up to a year after. The pandemic will hopefully lessen as we approach the summer months, but the possibility exists that it may regain momentum next fall or winter, which could have further deleterious effects on the ability of the economy to rebound.

The best possible news now would be positive indications that a vaccine will be forthcoming, and more immediately, indications that we are starting to get the virus under control. We need some positive news for our general psyche, especially as we will all need to adapt to the many societal changes. Unfortunately, the slow federal response has exacerbated this tragedy.”

Elliot Winer
Chief Economist, Winer Economic Consulting

“The Baker Administration deserves tremendous credit for managing through a pandemic crisis with no easy answers. State government has made good-faith and transparent efforts to limit the spread of COVID-19, secure appropriate equipment for front-line medical workers and, with the help of federal programs and resources, establish financial backstops for companies and workers alike. It will be a great day when we can all get back to business as usual.”

John R. Regan
President and CEO, AIM