Massachusetts business confidence see-sawed back into optimistic territory during July, though employers remain unsettled by the upcoming federal elections and a weakening national economy.  The July rebound suggests that June’s plunge in confidence was an aberration.

The Associated Industries of Massachusetts Business Confidence Index (BCI) gained 2.2 points to 52.0 last month, continuing an up-and-down pattern than began in March. The reading was 0.5 point less than a year ago and slightly above the 50 mark that separates negative and positive outlooks.

The survey was taken before last week’s selloff in the financial markets. The results came amid growing signs that elevated interest rates are both moderating inflation and beginning to slow the economy. The US unemployment rate rose to 4.3 percent in July, the highest level since October 2021, while the 12-month inflation rate, measured by the core personal consumption deflator, remained at 2.6 percent.

Sara Johnson, Chair of the AIM Board of Economic Advisors (BEA), which oversees the BCI, said employers and consumers alike are taking a wait-and-see attitude as the Federal Reserve prepares to lower interest rates before the economy sputters too much.

“The Fed kept interest rates at a two-decade high last week, while leaving the door open for rate cuts as soon as its next meeting in September.” Johnson said.  “Its policy statement noted that the economic outlook is uncertain, presenting risks to both its employment and inflation goals.”

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.

But it’s not solely the economy that has employers cautious. Many who took part in the July said they are waiting to see the results of the November presidential election.

“The US Presidential election will impact the economy. The overall wrangling leading up to the election will impact the economy negatively,” wrote one company.

Another observed: “The uncertainty of the November 2024 election and those results may throw a wrench into our business, depending on the outcome.”

Confidence varied regionally across the Commonwealth. The Central Massachusetts Business Confidence Index, conducted with the Worcester Regional Chamber of Commerce, increased from 46.8 to 47.5; the Western Massachusetts Business Confidence Index, developed in collaboration with the Springfield Regional Chamber of Commerce, rose from 50.3 to 53.6; and the North Shore Confidence Index, conducted with the North Shore Chamber of Commerce, dipped into pessimistic territory at 48.0.

Constituent Indicators 

The constituent indicators that make up the Index were all higher in July.

The confidence employers have in their own companies rose 2.1 points to 52.9. That figure was 0.7 point lower than a year ago.

The Massachusetts Index assessing business conditions within the Commonwealth jumped 1.9 points to 51.6, leaving it 2.7 points below its level of July 2023. The US Index measuring conditions throughout the country increased 2.9 points to 49.6, up 2.3 points over the past 12 months.

The Current Index, which assesses overall business conditions at the time of the survey, surged 3.5 points to 51.7. The Future Index predicting conditions six months from now was up 0.9 points to 52.3.

The Manufacturing Index gained 1.1 points to 46.1 last month but remained well below the overall confidence reading. The Employment Index increased 1.6 points into optimistic territory at 50.8.

Large companies (54.7) were more optimistic than medium-sized companies (51.3) or small companies (50.6).

Olena Staveley-O’Carroll, Ph.D., Associate Professor of Economics at the College of the Holy Cross and a BEA member, suggested that persistently high interest rates continue to mute consumer sentiment.

“Traditional inflation measures do not include cost of credit, which consumers and businesses naturally perceive as part of their monthly costs of living/doing business. Augmenting inflation measures with cost of credit helps to resolve most of the sentiment puzzle,” Staveley-O’Carroll said.

Progress in Housing

AIM President and CEO Brooke Thomson, also a BEA member, said employers are encouraged that the Massachusetts Legislature took a major step toward addressing the housing crisis that is driving valuable employees to less expensive areas of the country.

“The Affordable Homes Act passed by the Legislature represents a significant step towards addressing the Commonwealth’s housing crisis. The bill provides much needed investments and implements key policy changes without imposing any anticompetitive policies,” Thomson said.

“This historic investment will help to reduce the prohibitive cost of housing in the state and help to ensure that the people who work for Massachusetts businesses can also live here. We have a supply problem, and the only solution is to build our way out and provide access to thousands of new homes for our workers. “