Business Confidence Strengthens in August

Confidence among Massachusetts employers strengthened for a second consecutive month during August as the pressing need to hire employees outweighed growing concerns about inflation and recession.

The Associated Industries of Massachusetts Business Confidence Index (BCI) rose 2.5 points to 55.3 after posting a two-point gain in July.  The Index remains 6.7 points lower than a year ago but comfortably within optimistic territory.

The increase reflected brighter views among employers about both the state and national economies, as well as a bullish outlook among manufacturers.

Most survey responses came before Federal Reserve Chair Jerome Powell sent financial markets reeling by reaffirming the Fed’s commitment to moderating inflation during a speech in Jackson Hole, Wyoming on August 26.

“The current economy seems to be operating on two levels,” said Sara L. Johnson, Chair of the AIM Board of Economic Advisors.

“On one hand, we have seen the highest inflation in 40 years and economic output decrease over two quarters. On the other hand, employers in Massachusetts are still seeking the qualified workers needed to expand and fill orders.”

Employers who participated in the August survey summed up the paradoxical economic moment.

“Inability to hire qualified employees is hampering our production capabilities,” wrote one employer.

Meanwhile, another emphasized the inflation threat: “Some vendors are pricing equipment and services at 1.5 times to 2 times pre-pandemic rates because they are very busy.  One really needs to shop smarter or be patient for things to quiet down.”

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 Index were uniformly higher in August.

The confidence employers have in their own companies edged up 1.8 points to 58.5, ending the month 4.2 points lower than in August 2021. The government reported in late August that a measure of US profit margins has reached its widest since 1950.

The Massachusetts Index assessing business conditions within the Commonwealth gained 2.1 points to 54.1, down 10.2 points from a year earlier. The US Index measuring conditions throughout the country surged 4.9 points to 46.8 but remained in pessimistic territory.

The Current Index, which assesses overall business conditions at the time of the survey, increased 2.0 points to 56.4. The Future Index, measuring projections for the economy six months from now, jumped 3.1 points to 54.2 and has now increased by 6 points in two months.

The Manufacturing Index rose 2.3 points to 56.5, remaining higher than the 53.9 reading for non-manufacturing businesses.

Medium-sized companies (57.2) were more optimistic than small companies (54.3) or large companies (52.7).

Michael D. Goodman, Professor of Public Policy at UMass Dartmouth and a BEA member, acknowledged that two consecutive quarters of economic contraction have not slaked the appetite of employers for well-trained and well-educated workers.

Michael D. Goodman, Professor of Public Policy at UMass Dartmouth and a BEA member, acknowledged that the current state economic slowdown has not appreciably slowed employer demand for workers.

“We lived through a so-called jobless recovery after 2008 when employment growth was painfully slow.  More recently, despite a notable slowing of state economic growth, demand for skilled and educated workers remains strong,” Goodman noted.

“This suggests employers may be holding onto workers that they may not need be able to fully utilize today out of concern that they will not be able to find them when they need them in the future,” Goodman added.

Tax Picture Murky

AIM President and CEO John R. Regan, also a BEA member, said Massachusetts employers are developing a case of whiplash trying to follow a surge of tax issues that could help or harm them in 2022.

“From the prospect of Massachusetts returning $2.941 billion to taxpayers to $1 billion in tax relief included in an economic development bill that remains in limbo to a 15 percent corporate minimum tax included in the federal Inflation Reduction Act, employers are struggling to digest how much they will owe the government next year,” Regan said.

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

Media Contacts:

Sara L. Johnson (Chair), 781-367-0587
Michael A. Tyler, CFA, (Vice Chair) Chief Investment Officer, Eastern Bank Wealth Management 617-897-1122

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., 617-451-0001
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
Katherine A. Kiel, Ph.D., Professor of Economics, College of the Holy Cross 508-793-2743
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, 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