Massachusetts employers are still not persuaded that the economy is fully healthy.

The Associated Industries of Massachusetts Business Confidence Index (BCI) lost 2.3 points to 52.2 last month, breaking a three-month string of increases. The reading remained within optimistic territory and was 0.7 point higher than it was in March 2023.

Survey participants cited concerns about high interest rates, rising labor costs, inflation and softening demand as the state economy slowed to a 3.0 percent annualized growth rate in the fourth quarter of 2023. Inflation as measured by the personal consumption expenditures price index is now running at 2.5 percent, within sight of the Federal Reserve’s 2 percent target.

“The Fed has signaled that it expects to reduce its key interest rate three times during 2024 despite stronger-than-expected price increases during January and February. Financial markets have already priced in the three rate cuts, which should help the economy as we move through the year,” said Sara Johnson, Chair of the AIM Board of Economic Advisors.

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.

Employers who took part in the March survey expressed uncertainty about the overall economy and their own business prospects.
“Stable but still problematic. Inflation on labor has significantly escalated the cost of doing business when it comes to private development,” wrote one company.

Another observed: “Large scale commercial construction will be hurting.”

The Central Massachusetts Business Confidence Index, conducted with the Worcester Regional Chamber of Commerce, fell slightly from 52.4 in February to 51.9 in March. The North Shore Confidence Index, conducted with the North Shore Chamber of Commerce, rose from 50.0 to 56.0. The Western Massachusetts Business Confidence Index, developed in collaboration with the Springfield Regional Chamber of Commerce, went from 55.4 to 50.5.

Constituent Indicators

The constituent indicators that make up the Index all moved lower during March.

The confidence employers have in their own companies fell 2.0 points to 53.9, ending the month 1.7 points better than a year ago.

The Massachusetts Index assessing business conditions within the Commonwealth was down 1.9 points to 52.3, leaving it 3.0 points higher than in March 2023. The US Index measuring conditions throughout the country fell to 47.3, still up 6.3 points over the past 12 months.

The Current Index, which assesses overall business conditions at the time of the survey, declined 2.6 points to 51.4. The Future Index predicting conditions six months from now lost 1.9 points to 53.1.

The Manufacturing Index tumbled 5.4 points last month after gaining ground in February. The Employment Index slid 4.7 points into pessimistic territory at 49.1, a clear sign of business caution.

Large companies (54.3) were more optimistic than small companies (53.5) and medium-sized companies (47.7).
Nada Sanders, Distinguished Professor of Supply Chain Management at Northeastern University and a BEA member, said global supply chains have not fully rebounded post-Covid and are now struggling with disruptions such as shipping in the Middle East, the bridge collapse at the key Port of Baltimore, the Panama Canal drought, and economic softness in China.

“Baltimore is a primary processing point for imported autos and small trucks, but other East Coast ports should be able to help in the short run – at least until the bridge wreckage is cleared. However, if this situation drags on it will create economic impacts both on the East Coast and domestically ” Sanders said.

Health-Care Costs

AIM President and CEO Brooke Thomson, also a BEA member, said AIM member employers continue to struggle with health-care costs that rose at twice the state benchmark during 2022.

“The challenges facing the health care and health-insurance systems in Massachusetts have been years in the making and will take years to resolve. AIM remains committed, however, to rolling up its sleeves and working toward a solution that preserved Massachusetts’ unique global health system without bankrupting the employers who pay most of the bills,” Thomson said.