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Business Confidence Rises in May

Posted on June 1, 2020

Business confidence ticked up slightly in May as Massachusetts employers welcomed the re-opening of the state economy after the COVID-19 shutdown.

The Associated Industries of Massachusetts Business Confidence Index gained 3.7 points to 42.1 two months after suffering the largest one-time decline in its history. The increase left the Index 15 points lower than in May 2019 and well below the 50-point mark denoting an optimistic outlook on the economy.

The rise in confidence came as Massachusetts Governor Charlie Baker announced a four-phase process for re-opening the state economy under strict workplace safety guidelines. Employers hope a timely return to business will allow them to re-hire some of the 1.2 million Massachusetts residents who have filed for unemployment since the onset of the pandemic.

“Employers are encouraged that Massachusetts has been able to moderate the number of new COVID-19 cases. We have said all along that the current economic crisis is being driven by the public-health crisis and that’s what we see here,” said Raymond G. Torto, professor at the Harvard Graduate School of Design and Chair of the 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.

Constituent Indicators

The constituent indicators that make up the Business Confidence Index were uniformly higher during May.

Employers’ confidence in their own companies rose 3.9 points to 45.7.

The Massachusetts Index assessing business conditions within the commonwealth increased 2.9 points to 37.4, leaving it 23.5 points lower than in May 2019. The US Index measuring conditions nationally gained 3.9 points to 36.0, a drop of 19.0 points during the year.

The Current Index, which assesses overall business conditions at the time of the survey, was up 4.9 points to 36.1. The Future Index, measuring expectations for six months out, rose 2.6 points to 48.2

The Employment Index increased 3.5 points in May while the Sales Index, a leading indicator, gained 2.1 points to 40.3.

Manufacturing companies (42.4) were slightly more confident than non-manufacturers (41.5). Medium-sized companies (44.0) were more optimistic than both large companies (40.4) or small companies (41.3). Companies in eastern Massachusetts (44.3) were more optimistic than those in the west (38.6).

Elliot Winer, Chief Economist at Winer Economic Consulting and a BEA member, said any uptick in employer sentiment is important at a time when the COVID-19 virus caused the Massachusetts economy to contract at an estimated 6.1 percent annual rate during the first quarter.

“The fact that the Future Index is 12 points higher than the Current Index suggests that some employers believe they will be able to resume acceptable business volume as long as the virus remains under control,” Winer said.

Back to Work

AIM President and CEO John R. Regan, also a BEA member, said that Governor Baker’s deliberate re-opening plan marks an encouraging first step to re-opening the state economy in a safe and efficient manner.

The first phase of the four-stage re-opening plan allows manufacturing and construction companies, along with houses of worship, to resume operations.

“We realize that every employer in Massachusetts would love to hear that they can re-open immediately. But we also acknowledge that a phased re-opening balances the need to re-start the economy with the need to manage a public-health crisis that continues to claim many lives a day in Massachusetts,” Regan said.

“Any decision by government to lift of the prohibition on non-essential businesses will be just the beginning for Massachusetts employers, who will in many cases need to reconfigure workplaces for social distancing and determine how to implement other safety measures such as the wearing of protective equipment, continuing work-from-home policies and ensuring the health of workers and customers.”