Business confidence fell slightly in Massachusetts last month as employers found themselves squeezed by rising costs, shrinking profits and a slowing economy.

The Associated Industries of Massachusetts Business Confidence Index (BCI) lost 0.3 point to 51.9 in April, its second consecutive monthly decline. The reading remained marginally within optimistic territory and was 0.8 point higher than it was in April 2023.

Survey participants cited concerns about high interest rates, rising labor costs, inflation and softening demand as the national economy slowed to a 1.6 percent annualized growth rate in the first quarter. Inflation remains above the Federal Reserve’s 2.0 percent annual target and the Fed last week suggested that bringing down inflation would “take longer than previously expected.”

“Employers and consumers alike are experiencing persistent inflation and slowing economic activity, leading to increased caution. The good news is that real private consumption and investment have continued to rise, while the job market has come into better balance,” 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 April survey expressed concern about the overall economy and their own business prospects.

“Labor costs, material costs, and energy costs are all up and, while our competitors are also seeing higher materials costs, our labor and energy costs are typically higher due to the state we live in. We rarely can pass those costs on to our customers without losing market share,” wrote one company.

Another observed: “Construction activity has slowed over the past three months as many projects have been delayed or cancelled due to high interest rates and/or lack of demand.”

Confidence varied regionally across the Commonwealth. The Central Massachusetts Business Confidence Index, conducted with the Worcester Regional Chamber of Commerce, fell to 45.9; similarly, the Western Massachusetts Business Confidence Index, developed in collaboration with the Springfield Regional Chamber of Commerce, slid modestly to 48.4. In contrast, the North Shore Confidence Index, conducted with the North Shore Chamber of Commerce, remained firmly in optimistic territory at 59.6.
Analysts believe the high concentration of technology and high-end service companies north of Boston and the relatively heavy presence of manufacturing businesses west of Interstate 495 accounts for some of the regional variation.

Constituent Indicators

The constituent indicators that make up the Index were mostly lower during April.

The confidence employers have in their own companies was essentially unchanged, slipping 0.1 point to 53.8. That figure was 0.6 point better than a year ago.

The Massachusetts Index assessing business conditions within the Commonwealth was down 2.1 points to 50.2, leaving it 1.6 points higher than in April 2023. The US Index measuring conditions throughout the country rose slightly to 47.6, up 5.2 points over the past 12 months.

The Current Index, which assesses overall business conditions at the time of the survey, was flat at 51.4. The Future Index predicting conditions six months from now lost 0.7 point to 52.3.

The Manufacturing Index gained 1.1 points last month after losing ground in March. The Employment Index rose 1.8 points to climb back into optimistic territory.

Large companies (58.9) were more optimistic than medium-sized companies (50.4) or small companies (45.3).

Suzanne Dwyer, President, Massachusetts Capital Resource Company and a BEA member, said that Mass Capital continues to see significant levels of business formation and growth despite persistently high interest rates.

“Census data tell us that the rate of business formation in Massachusetts has remained steady during the past two years. That doesn’t mean that entrepreneurs don’t face challenges in the current economy, but activity and energy remain strong,” Dwyer said.

Understanding the Transportation Challenge

AIM President and CEO Brooke Thomson, also a BEA member, said that transportation remains a significant concern for the association’s 3,400 member employers. She said that AIM’s approach to transportation mirrors the deliberate, fact-based approach that member companies would use to solve any business problem.

“Amid the predictable proposals being tossed about to fund the transformation of transportation, AIM believes we all need to step back and ask: What is the problem we are trying to solve? What information do we need? And how do changing patterns of work and travel shape potential solutions to the problem?” Thomson said.