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Business Confidence Weakens Slightly in July

Posted on August 1, 2017

Massachusetts employer confidence meandered through the first full month of the summer, edging down during July but remaining well within optimistic territory.

BCI.July.2017.jpgThe Associated Industries of Massachusetts Business Confidence Index (BCI) shed 0.3 points to 61.5 last month, leaving it 6.4 points higher than a year ago. The Index has gained ground in five of seven months so far in 2017.

The July slip was led by the Employment Index, which dropped 2.4 points from June. Experts on the AIM Board of Economic Advisors believe the slide reflects employers’ inability to hire skilled workers amid a tight labor market rather than a hiring slowdown caused by economic factors.

“Confidence levels at or above 60 signal continued strong confidence among employers in the direction of the state and national economies,” said Raymond G. Torto, Chair of AIM’s Board of Economic Advisors (BEA) and Lecturer, Harvard Graduate School of Design.

“The labor shortage is a serious issue. We hear anecdotes from companies in multiple industries that are turning away business or postponing expansions because they can’t find tech specialists, manufacturing workers or electricians to take the new jobs.”

The AIM Index, based on a survey of 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 index has remained above 50 since October 2013.

Constituent Indicators  

The constituent indicators that make up the overall Business Confidence Index were mixed during July.

The Massachusetts Index, assessing business conditions within the commonwealth, lost a point to 63.2, still six points higher than in July 2016.

The U.S. Index of national business conditions rose 0.5 points to 57.9 despite lingering uncertainty about federal health-care and economic policy. July marked the 88th consecutive month in which employers have been more optimistic about the Massachusetts economy than the national economy.

The Current Index, which assesses overall business conditions at the time of the survey, declined 0.7 points to 61.2 while the Future Index, measuring expectations for six months out, edged up 0.1 point to 61.8. The Future Index ended the month seven points higher than a year ago.

Operational Views

The Company Index, reflecting overall business conditions, lost 0.2 points to 62.2, up 6.3 points during the 12-month period. And though the employment Index dropped to 55.7 the Sales index rose for the third consecutive month, gaining 1.5 points to 64.1.

The AIM survey found that 39 percent of respondents reported adding staff during the past six months while 19 percent reduced employment. Expectations for the next six months are similar ” 37 percent hiring and only 10 percent downsizing.

Elliot Winer, Chief Economist, Winer Economic Consulting, said workers with the type of skills needed by employers in growing industries remain in short supply, even though Massachusetts has posted significant increases to its labor force so far in 2017.

“Employers report that it is increasingly hard to fill jobs. Job vacancies now significantly exceed new hiring. And yet, wage growth in the state has been near zero when adjusted for inflation,” Winer said.

Eastern Massachusetts companies were more confident in June than those in the western portion of the commonwealth. Eastern Massachusetts employers posted a 61.5 confidence reading in June versus 60.5 for employers in the west.

Manufacturing companies remained optimistic about the economy with the 59.6 confidence reading, but not as optimistic as employers outside the manufacturing sector, who posted a 63.6 result.

Massachusetts Backlash?

AIM President and CEO Richard C. Lord, also a BEA member, noted that employer confidence in the Massachusetts economy has stalled as the state legislature has taken several troubling votes, including one last week to force employers to close a $200 million gap in MassHealth with no long-term reforms to the program.

“Employers are thus left not only to struggle with the rising cost of providing health insurance to their own employees, but to bail out an unsustainable public insurance program as well,” Lord said.

“There are consequences to raising the cost of doing business and declining confidence is a red flag for what may come next.”