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Employer Confidence Rises As Companies Brighten View of National Economy

Posted on November 3, 2014

The Associated Industries of Massachusetts Business Confidence Index posted its sixth increase in eight months during October as a brightening view of the national economy helped the index add half a point to 54.9.

BCI.October.2014“The Index is up 8.2 points from last October, which was the month of the federal government shutdown,” said Raymond G. Torto, Chair of AIM’s Board of Economic Advisors (BEA) and Lecturer, Harvard Graduate School of Design.

“In that context, it is encouraging to see our U.S. Index of national conditions back above 50, up from below 40, and predominantly positive assessments of the business climate from all categories of Massachusetts employers.”   

Torto noted, however, that employers foresee a slight weakening of conditions in the six months ahead.

“There may be some uneasiness about the upcoming elections and the long-expected end of quantitative easing by the Federal Reserve,” he said, “along with concern about the state of the global economy, characterized by fitful growth in the U.S., slowing expansion in China, and Europe on the edge of recession. These generally fall under the heading of uncertainties rather than threats, although Europe’s condition is especially important to Massachusetts because of extensive ties of trade and direct investment.”

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 Massachusetts Index, assessing business conditions within the commonwealth, added 2.6 points on the month to 53.3, and the U.S. Index of national business conditions was up 3.6 to 50.6.

“The U.S. Index reached 50 for only the second time since 2007,” remarked BEA member Michael A. Tyler, CFA, Chief Investment Officer, Eastern Bank Wealth Management, adding that “larger companies were more likely to rate business conditions in Massachusetts better than those prevailing nationally.” Compared to last October, the state indicator was up 8.8 points while its national counterpart gained 12.8 points.

The Current Index, which assesses overall business conditions at the time of the survey, was up 1.8 points at 55.7, while the Future Index, measuring expectations for six months out, shed seven-tenths to 54.2. The annual gains were 9.5 and 6.4 respectively.

“These results indicate a moderate level of satisfaction ” short of outright enthusiasm ” about current conditions, coupled with a degree of caution about the future course of the economy,” Tyler noted. “Business sentiment has found a firm footing since the series of fiscal crises that peaked a year ago.”  

All three of the sub-indices bearing on survey respondents’ own operations shaded off in October. The Company Index, reflecting overall business conditions, was off 1.1 points to 56.9, the Sales Index lost 1.7 to 57.6, and the Employment Index shed seven-tenths to 54.4.

“Declines in these company-specific indicators may be seen as signs of rising uncertainty,” said Sara L. Johnson, Senior Research Director of Global Economics at IHS Global Insight, a BEA member. “While companies of all sizes were generally positive, large employers were much more confident than small ones about their own situations.”

Confidence was slightly higher in the manufacturing sector (55.2, +4.1) than among other employers (54.7, -3.7), and higher outside Greater Boston (58.2, +5.4) than outside the metropolitan area (53.5, -1.8).

“Manufacturers were more positive about national conditions, and about their own companies’ positions, than other respondents,” Johnson noted.

“Caution about the immediate future was evident in hiring expectations,” she said; only 16% of employers foresaw additional staffing in the coming six months, compared to 33% who added personnel in the prior six months. Staff reductions were at 13% for both periods.