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Employer Confidence Shifts with Uncertain Economy

Posted on August 7, 2012

The mood of Massachusetts employers continues to shift with the swirling global economic winds.

Business Confidence INdexThe Associated Industries of Massachusetts Business Confidence Index surged into positive territory during July after suffering its second largest monthly decline ever the previous month. The July confidence reading of 52.2 was higher than it was in July 2011 as employers grew more bullish about the prospects for their own companies during the second half of the year.

But lingering doubts about economic growth, the Eurozone crisis and an impending “fiscal cliff” in the United States continued to leave most employers reluctant to expand and hire. Employer views of the U.S. economy remain almost 10 points lower on the AIM Index than their overall confidence level. The U.S. Index of business conditions prevailing nationally gained 1.4 points in July to 41.9, and the Massachusetts Index of conditions within the Commonwealth rose 1.6 to 49.2.

“Here we see the impact of economic uncertainty,” said Fred Breimyer, Regional Economist for the Federal Deposit Insurance Corporation and a member of the AIM Board of Economic Advisors.

“Each of these indices was off 7.9 in June, and each has regained only a fraction of that loss. Both are weaker than objective current conditions justify, with the national indicator especially low – only 6 percent of survey respondents rated national business conditions good, while 38 percent called them bad.”

Release of the AIM report came a day after The New York Times reported that a growing number of manufacturing companies are canceling new investments and postponing new hires because they fear that paralysis in Washington will force billions of dollars in tax increases and budget reductions in January.

The 3.9-point jump in employer confidence during July left the AIM Index almost two points higher than it was in July of last year.

“The fluctuations in business confidence reflect a continuing high level of uncertainty in the economic outlook, which makes Massachusetts employers cautious about expectations, and reluctant to add to the workforces even when they are doing relatively well,” said Raymond G. Torto, Global Chief Economist at CB Richard Ellis Group, Inc.

The specter of sequestration – federal budget cuts that will take effect automatically in 2013 unless Congress acts – looms over key Bay State economic sectors, said Richard C. Lord, President and Chief Executive Officer of AIM.

“We are not projected to feel the same impact as states with disproportionate numbers of federal employees, but we would face extreme disruption to key industries, on both the defense and the non-defense sides. Our state ranks fifth in Defense/Homeland Security contracts, with almost $14 billion in contracts, 2,500 contractors, and 130,000 jobs,” Lord said.

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.