Business confidence posted its largest one-month drop since the onset of the COVID-19 pandemic during February as employer sentiment about the state and national economies turned bearish.

The Associated Industries of Massachusetts Business Confidence Index (BCI) declined 5.2 points to 50.4, just north of the dividing line between optimism and pessimism on the 100-point BCI scale. The Index ended the month 4.1 points lower than in February 2024.

It was the largest monthly decline since March 2020 and, before that, since 2018.

The weakening of confidence reflected employer uncertainty about a host of federal policy initiatives, including the imposition of new tariffs, stepped-up scrutiny of migrant workers, and potential reductions in federal research funding for organizations in Massachusetts.

“A number of survey participants expressed concern about the prospect of tariffs imposed on goods from Canada, Mexico and China, as well as the potential effect of retaliatory tariffs,” said Sara Johnson, Chair of the AIM Board of Economic Advisors (BEA), which oversees the BCI.

“Employers were less optimistic about prospects for their own companies, and they turned pessimistic about the business environment in Massachusetts and the rest of the country.”

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, 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 lower in February.

The confidence employers maintain in their own operations lost 3.4 points to 53.9. That figure was 2.0 points weaker than in February 2024.

The Massachusetts Index assessing business conditions within the Commonwealth tumbled 6.6 points into pessimistic territory at 46.5, leaving it 7.7 points lower than a year earlier. The US Index measuring conditions throughout the country dropped 8.8 points to end the month at 44.2.

The Current Index, which assesses overall business conditions at the time of the survey, lost 4.3 points to 51.4. The Future Index predicting conditions six months from now declined 6.0 points to 49.5.

The Manufacturing Index slid 1.2 points to 52.6. The Employment Index fell one point to 52.4, indicating a still-solid employment market.

Small companies (51.1) were more optimistic than medium-sized companies (50.5) or large companies (50.0).

Alan Clayton-Matthews, Professor Emeritus of Economics & Public Policy at Northeastern University, said that the rate of growth in the Massachusetts economy will continue to be slow and trail that of the U.S. economy during the first half of 2025.

“Massachusetts real GDP is expected to grow at an annual rate of 0.7 percent in the first quarter and 1.0 percent in the second quarter of this year. The Wall Street Journal forecast of economists from early January is for U.S. GDP growth of 2.2 percent in the first quarter and 2.0 percent in the second quarter,” Clayton-Matthews said.

Importance of Research Funding

AIM President and CEO Brooke Thomson said the potential loss of billions of dollars in funding from the National Institutes of Health (NIH) poses a grave threat to one of the key growth engines of the Massachusetts economy.

“NIH funding plays a vital role in Massachusetts, providing billions of dollars to support our world-renowned hospitals, research institutions, and universities,” Thomson said.

“In Fiscal Year 2024 alone, Massachusetts received $3.46 billion in NIH funding, distributed across 219 organizations working to develop treatments for cancer, heart disease, and diabetes, advance biotechnology for organ transplants, combat the opioid crisis, and much more.”