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Employer Confidence Remains Steady in Calm Before Storm

Posted on August 9, 2011

Employer confidence remained steady during July in what now appears to be the calm before the current economic storm of downgraded United States debt and plunging financial markets.

Business confidenceThe Associated Industries of Massachusetts Business Confidence Index (BCI) rose half a point to 50.5, remaining near the dividing line between positive and negative territory. The BCI has drifted between 50 and 55 points on a 100-point scale since last October as employers have grown ambivalent about a persistently sluggish economic recovery.

The good news is that Massachusetts employers remained confident about the prospects for their own companies even as the contentious battle over raising the debt ceiling played out in Washington, DC. The bad news is that this week’s decline in world financial markets over concerns about European and US debt creates uncertainty that may inevitably slow economic activity.

That slowdown could be a particular concern in Massachusetts, where key industries such as health care, education and defense rely heavily on a government that will be cutting trillions of dollars from its budget during the next decade.

“July brought more evidence of a lackluster economy, with the deadlock in Washington adding to the uncertainty about prospects for future growth. The deal reached at the end of the month to end the debt crisis may or may not restore faith in national leadership; it will not end the uncertainty, however, because we don’t know what the impact will be on the economy.” said Raymond G. Torto, Global Chief Economist at CB Richard Ellis Group, Inc., the chair of AIM’s Board of Economic Advisors (BEA).

Employers grew bearish about both the state and national business climate during July. The Massachusetts Index of conditions prevailing within the commonwealth shaded off a tenth to 46.5, and the U.S. Index of national conditions fell a point to 37.8.

“The state indicator has been above its national counterpart in 41 of the past 42 months,” said Professor Alan Clayton-Matthews of the School of Public Policy and Urban Affairs at Northeastern University, a BEA member. “The recession was less severe for Massachusetts than for the nation, and our recovery, led by technology industries, has been somewhat stronger. Our growth appears to have been much more robust than the nation’s in the first half of 2011.” 

Bay State employers liked what they saw when they turned their attention to their own companies. The Company Index, which measures survey respondents’ overall confidence in the situations of their own operations, was up 1.1 points in July to 56.1.  The two other company-specific measures each saw one-point gains – the Sales Index to 54.5 and the Employment Index to 54.2.

Confidence levels were similar in July among manufacturers (50.2, -2.8) and other employers (50.8, +4.7); confidence was slightly higher in Greater Boston (51.5, +0.5) than outside the metropolitan area (48.8, +0.4).