Business Confidence Rebounds in July

Massachusetts employers shrugged off inflation, rising interest rates and a second consecutive quarter of real gross domestic product contraction to post an increase in confidence during July.

The Associated Industries of Massachusetts Business Confidence Index (BCI) rose 2.0 points to 52.8 after falling close to pessimistic territory in June. The Index remains 12.8 points lower than a year ago.

The increase reflected the paradoxical nature of the current economy, which has seen economic output decrease both statewide and nationally since January despite a strong labor market with low unemployment and a surplus of job openings.

Employers remain bullish about hiring plans and also reported a brighter view of both the Massachusetts and US economies during July.

“The Federal Reserve continues to balance efforts to moderate the highest rate of inflation in 40 years with an economy that is slowing down but still fundamentally strong in many areas,” said Sara L. Johnson, Chair of the AIM Board of Economic Advisors.

“Real consumer spending increased at a 1.0 percent annual rate in the second quarter and the unemployment rate nationally remains 3.6 percent even as rising interest rates are slowing the economy, reducing the demand for residential construction, and lowering asset prices.”

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 uniformly higher in July.

The Massachusetts Index assessing business conditions within the Commonwealth gained 4.8 points to 52.0, down 14.0 points since July 2021. The US Index measuring conditions throughout the country rose to 41.9 but remained in pessimistic territory.

The Current Index, which assesses overall business conditions at the time of the survey, increased 1.0 point to 54.4. The Future Index, measuring projections for the economy six months from now, jumped 3.0 points to 51.1.

The confidence employers have in their own companies edged up 0.7 points to 56.7, ending the month 11.0 points lower than in July 2021.

The Manufacturing Index rebounded 4.9 points to 54.2 – 10.6 points less than a year ago.

Large companies (54.5) were more optimistic than small companies (51.8) or medium-sized companies (51.6).

Nada Sanders, Distinguished Professor of Supply Chain Management at Northeastern University and a BEA member, said some improvement has taken place in the supply chain disruptions that have fueled inflation, but that issues will persist for the remainder of the year.

“Labor availability has improved in key areas, such as ports, to help move goods across the world. And companies have been signing long-term contracts with shippers to secure transportation, which was normally a buy-it-as-you-need-it market prior to the pandemic,” Sanders said.

Tax Picture Murky

AIM President and CEO John R. Regan, also a BEA member, said that an economic development bill that promised $1 billion in tax relief did not survive the final legislative session on Beacon Hill early Monday morning, but that Massachusetts taxpayers may still end up enjoying a $3 billion tax rebate under a 1986 tax-cap law.

“The economic development bill included several important provisions, most notably $300 million to cover the cost of unemployment insurance payments mistakenly made to thousands of individuals during the chaotic early days of the COVID-19 pandemic. We will continue to work with the Legislature and the Baker Administration to ensure that the issue is resolved,” Regan said.

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 particular 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

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