Confidence among Massachusetts employers weakened for a second consecutive month during October as rising interest rates began to take a toll on key economic sectors such as housing, finance and technology.

The Associated Industries of Massachusetts Business Confidence Index (BCI) lost 3.0 points to 50.9, barely within the range that defines an optimistic outlook. The Index is now at its lowest level since June and 7.5 points short of its level a year ago.

The slide in confidence came as the Federal Reserve increased interest rates another three-quarters of a percentage point in an effort to control inflation. And though the Massachusetts economy grew at a 0.5 percent annualized rate during the third quarter, the commonwealth also saw a slowdown in job growth and a decline in the labor force.

“Consumers continue to cautiously increase their spending, but we are starting to see higher interest rates adversely affect housing markets and related purchases such as furniture and appliances. Rising interest rates are also affecting the technology sector through constraints on the supply of venture capital and private investment funding,” said Sara L. 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.

The Central Massachusetts Business Confidence Index, conducted with the Worcester Regional Chamber of Commerce, fell from 53.3 to 47.8 last month. The North Shore Confidence Index, conducted with the North Shore Chamber of Commerce, slipped from 53.8 to 51.7.

Constituent Indicators 

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

The confidence employers have in their own companies fell 1.3 points to 53.6, ending the month 7.6 points lower than in October 2021.

The Massachusetts Index assessing business conditions within the Commonwealth gained 3.1 points to 50.6, down 7.4 points from a year earlier. The US Index measuring conditions throughout the country fell into pessimistic territory at 42.9.

The Current Index, which assesses overall business conditions at the time of the survey, decreased 2.5 points to 52.5. The Future Index, measuring projections for the economy six months from now, lost 3.5 points to end the month at 49.2.

The Manufacturing Index rose 1.6 points to 50.7, virtually identical to the 50.9 reading for non-manufacturing businesses.

The Employment Index rose 1.6 points to 50.7 as employers continue to struggle to hire and retain talent.

Large companies (52.9) were more optimistic than medium-sized companies (51.5) and small companies (49.1).

Suzanne Dwyer, President, Massachusetts Capital Resource Company, and a BEA member, said companies are again hungry for capital after a period of consolidating debt following the COVID-19 pandemic.

“Companies are looking at mergers and acquisitions, as well as capital to deal with inventory needs. A recent survey by the Coalition for an Equitable Economy, in partnership with The MassINC Polling Group and Mass Growth Capital Corporation found that small businesses said they need more capital for equipment and expansion, and to hire more workers,” Dwyer said.

Workforce Challenges

AIM President and CEO John R. Regan, also a BEA member, said the workforce challenges facing employers may be more dire than anyone imagined. He noted that a survey released by MassINC this summer concludes that the working-age college-educated population of Massachusetts will decline by 10 percent, or 192,000 people, by 2030.

“Many AIM member businesses don’t need a survey to tell them what they already know – that labor shortages and lack of qualified talent, exacerbated by the impact of the COVID-19, have dealt a major blow to day-to-day operations. Our members, across all industries, are unable to fill positions with qualified candidates and the commonwealth is losing workers to lower-cost states,” 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 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