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Employer Confidence Drifts with Changing Economic Currents

Posted on June 5, 2012

Confidence among Massachusetts employers ebbed slightly last month as companies continued to drift in economic currents with no clear direction.

BCI.May.2012.SmallThe Associated Industries of Massachusetts Business Confidence Index (BCI) edged off three-tenths of a point in May to 56.8, still 5.1 points above its reading in May 2011. Fifty-three percent of companies responding to the BCI survey believe that current conditions for their companies are ‘good’ – the best number since 2007 – yet hiring expectations are weaker than they were at times in 2011 and 2010.

“Once again, we see a small month-to-month decline that could turn out to be a brief stutter, a leveling off or the start of a mid-year slump in confidence such as occurred in each of the past two years,” said Raymond G. Torto, Global Chief Economist at CB Richard Ellis Group, Inc., the chair of AIM’s Board of Economic Advisors (BEA).

“What is evident is a lack of sustained upward momentum in the economy, even though business conditions and business confidence have improved over time.”

Economic recovery in the United States has slowed in recent months in the face of the European debt crisis, stalled job growth at home, stock market declines, and weak national consumer confidence. U.S. employers created a paltry 69,000 jobs last month and many economists now believe the national economy will grow no faster than 2.1 percent during 2012.

AIM’s Business Confidence Index has been issued monthly since July 1991 under the oversight of the Board of Economic Advisors. Presented on a scale on which 50 is neutral, its historical high was 68.5, attained in 1997 and 1998; its all-time low was 33.3 in February 2009.

Bay State employers remain more optimistic about the future than the present, and more bullish about Massachusetts than the rest of the country.

The BCI’s Current Index, tracking employers’ assessment of existing business conditions, was off three-tenths in May to 54.8, while the Future Index, measuring expectations for the next six months, had a similar decline to 58.7. The U.S. Index of business conditions prevailing nationally lost one-tenth in May to 48.4, and the Massachusetts Index of conditions within the Commonwealth was off three-tenths to 55.5.

“There is no doubt that economic conditions are more favorable in Massachusetts than they are nationally,” said Sara L. Johnson, Managing Director of Global Macroeconomics at IHS Global Insight, Inc.

“At the same time, some of the persistent difference between these two indices may reflect not so much a contrast in business climates as the fact that the major uncertainties and threats to ongoing recovery are national and global, rather than local.”

And what about job growth? The BCI Employment Index shed a half-point to 56.0.

“The employment numbers we are seeing in the survey are positive and quite stable, though of course we could use more job creation,” said Elliot Winer, Chief Economist, Northeast Economic Analysis Group LLC.

“Employers who report adding staff in the past six months outnumber those with reductions by better than two-to-one (34 percent – 16 percent). Looking ahead, 31 percent of responding employers expect to add staff in the next six months, compared to 12 percent foreseeing reductions, which is in line with results in March and April.”