Rising interest rates, turbulent financial markets and the possibility of recession brought Massachusetts employer confidence to its lowest level in 18 months during May.

The Associated Industries of Massachusetts Business Confidence Index (BCI) slipped 3.4 points to 54.7. The Index now rests 7.2 points lower than a year ago, though it remains within optimistic territory.

Driving the decline was growing concern about the course of both the state and national economies. The BCI’s US Index plummeted 9.1 points for the month and more than 13 points for the year.

The Central Massachusetts Business Confidence Index, conducted with the Worcester Regional Chamber of Commerce, bucked the statewide trend by increasing 0.6 points to 57.5. The North Shore Confidence Index, conducted with the North Shore Chamber of Commerce, dropped from 61.8 in April to 56.1 last month.

May confidence numbers come against the backdrop of conflicting signals about the direction of the economy. Coming off a first quarter that saw the Massachusetts economy contract at a 1 percent annualized rate, the state’s unemployment rate nevertheless decreased by two-tenths of a percentage point to 4.1 percent in April and employers continue to struggle to find and attract qualified workers.

Massachusetts companies turned pessimistic about the national economy during May as inflation hit a 40-year high and major stock indices declined further,” said Sara L. Johnson, Chair of the AIM Board of Economic Advisors.

“Employers are now less confident about future conditions than present ones. At the same time, they remain optimistic about the prospects for their own companies.”

Supply chain issues continue to test Massachusetts employers.

“We are unable to budget on purchases and must buy earlier and in larger volumes and at higher costs just to ensure we have raw materials.  Daily and weekly updates from our suppliers show that they have little control on their pricing and production schedules,” one employer wrote on the confidence survey.

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 lower in May.

The Massachusetts Index assessing business conditions within the Commonwealth shed 3.5 points to 53.8, down 6.9 points since May 2021. The US Index measuring conditions throughout the country fell to its lowest level since December 2020.

The Current Index, which assesses overall business conditions at the time of the survey, declined 1.4 points to 56.7. The Future Index, measuring projections for the economy six months from now, lost 5.3 points to 52.7.

The confidence employers have in their own companies declined 1.4 points to 58.6, ending the month 5.2 points lower than in May 2021.

The Manufacturing Index fell 1.8 points to 54.5, breaking a string of three consecutive monthly gains. The Manufacturing Index now stands 7.2 points less than a year ago.

Medium-sized companies (58.7) were more optimistic than large companies (52.3) or small companies (51.0).

Edward H. Pendergast, Managing Director, Dunn Rush & Co., said Massachusetts companies spent two years dealing with a single, overwhelming challenge – COVID-19 – but now face a confusing intersection of challenges ranging from rising costs for materials to geopolitical instability.

“We still see healthy merger-and-acquisition activity along with new companies growing into the economy, but employers must deal with an unusually large number of distractions as they try to do business,” Pendergast said.

Price Increases

AIM President and CEO John R. Regan, also a BEA member, said two recent reports by the US Census Bureau found that the COVID-19 pandemic drove people out of major northern population centers like Boston and accelerated migration to suburban technology boom towns in the South and West.

The list of the 15 cities across the United States with the largest population losses during the first year of the pandemic includes Revere, Massachusetts, at number three (-4.0 percent) and Boston at number 12 (-2.9 percent).

“The numbers are a sobering reminder that high-costs states like Massachusetts and California cannot wantonly increase taxes and other costs on businesses and individuals and expect them to stay for the great clam chowder. Massachusetts voters who will consider a constitutional amendment this fall that would raise taxes on many home sales and retirement nest eggs should remember that the entrepreneurs driving economic prosperity in Massachusetts may just decide they have other options,” 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