Confidence among Massachusetts businesses held steady during August as employers remained slightly optimistic amid a resilient economy that continues to defy predictions of a recession.

Massachusetts

The Associated Industries of Massachusetts Business Confidence Index (BCI) was essentially flat last month, losing 0.1 of a point to 52.4. The Index has spent most of 2023 moving in a narrow range around the 50 mark that separates optimistic from pessimistic outlooks.

Confidence ended the month 2.9 points lower than a year earlier.

The confidence results came as the United States and Massachusetts economies continued to grow in the face of 11 interest-rate increases by the Federal Reserve in its campaign to moderate inflation. The unemployment rate in Massachusetts sits at an historic low of 2.5 percent while the commonwealth’s economy grew at an annualized rate of 4 percent during the second quarter.

The labor market remains tight. Real after-tax incomes in the US rose 3.8% in July from a year earlier and have risen year-over-year each month since January. Those gains help fuel robust consumer spending, which accounts for roughly two-thirds of U.S. economic output.

“US employers added 3.1 million jobs over the past 12 months, including 187,000 in August. The unemployment rate rose to 3.8% from 3.5% in July as more Americans joined the workforce. That

growing workforce and slower price increases have boosted Americans’ inflation-adjusted incomes this year, fueling more hiring and spending.” said Sara Johnson, Chair of the Board of Economic Advisors.

Participants in the Business Confidence Index Survey expressed guarded optimism about the remainder of 2023.

“As a sales manager, I have a good insight into the majority of businesses in our region and feel that most continue to be positive…Recruitment continues to be a need for all but specifically in manufacturing, home improvement, and health sectors.  Product shortage is no longer the primary discussion,” wrote one advertising executive.

The challenge of hiring and retaining workers remains significant.

“Hiring qualified staff, at a fair salary, continues to be our biggest challenge.  Some potential staff could be available but are asking for outrageous, out-of-line salaries,” wrote an engineering manager.

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.

The Central Massachusetts Business Confidence Index, conducted with the Worcester Regional Chamber of Commerce, fell from 52.2 to 50.9. The North Shore Confidence Index, conducted with the North Shore Chamber of Commerce, rose from 52.8 and 53.9. The Western Massachusetts Business Confidence Index, developed in collaboration with the Springfield Regional Chamber of Commerce gained 1.5 points to 55.8.

Constituent Indicators 

The constituent indicators that make up the Index were mixed during August.

The confidence employers have in their own companies lost 0.8 point to 52.8, ending the month 5.7 points less than August 2022.

Massachusetts

The Massachusetts Index assessing business conditions within the Commonwealth fell 0.8 point to 53.5, leaving it up 2.3 points from a year earlier. The US Index measuring conditions throughout the country increased 2.7 points to 50.0, emerging from pessimistic territory for the first time this year.

The Current Index, which assesses overall business conditions at the time of the survey, decreased 0.6 point to 53.0. The Future Index, measuring projections for the economy six months from now, gained 0.4 point to end the month at 51.8.

The Manufacturing Index posted a 1.9-point decrease to 47.7 – 8.8 points lower than a year ago and into a pessimistic range. Confidence among non-manufacturing companies was up 1.6 points to 56.0.

The Employment Index was essentially unchanged, gaining 0.2 point to 51.2.

Large companies (58.7) were more optimistic than small companies (50.8) and medium-sized companies (48.8).

Olena Staveley-O’Carroll, Associate Professor of Economics at the College of the Holy Cross, and a member of the BEA, said that economic activity has been uneven across different sectors.

“Some sectors that are normally very interest-rate sensitive haven’t provided the expected drag on growth this year. Auto production couldn’t keep up with demand in 2020 and 2021 but now is catching up, so it has been less sensitive to higher rates. Rising mortgage rates delivered a huge blow to housing affordability, but that has benefited home builders, who face less competition from resales,” Staveley-O’Carroll said.

Tax Relief

AIM Chief Executive Officer John R. Regan, a BEA member, said the marked decline in confidence among Massachusetts manufacturing companies should prompt the Massachusetts Legislature to move forward with a tax relief package.

“We know AIM members are still struggling with workforce shortages and have challenges hiring qualified candidates. One of the simplest ways to solve this problem is to provide immediate tax incentives to keep workers in Massachusetts – including through increased housing production – and avoid a further drain of our talent pool,” Regan said.

Massachusetts

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.  Several component sub-indices are derived by analyzing responses to selected questions or those of groups of respondents.

Media Contacts:

Sara L. Johnson (Chair), 781-235-9479, saralynnjohnson@verizon.net
Michael A. Tyler, CFA, (Vice Chair) Chief Investment Officer, Eastern Bank Wealth Management 617-897-1122

Marcelo Suárez–Orozco, Ph.D., Chancellor, University of Massachusetts, Boston (617) 287-6800
Simona M. Mocuta, Chief Economist at State Street Global Advisors 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) 821-0130
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
Olena Staveley-O’Carroll, Ph.D., Associate Professor of Economics, College of the Holy Cross, (508) 793-2736
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, CEO, Associated Industries of Massachusetts 617-262-1180
Brooke M. Thomson, 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