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Employer Confidence Strengthens in March

Posted on April 5, 2016

Massachusetts employers grew more confident during March as turbulence in China and other key global markets subsided.

BCI.March.2016.jpgAt the same time, a significant gap has developed between the bullish outlook of service companies and a less optimistic view among manufacturers that is also reflective of national developments.

The Associated Industries of Massachusetts (AIM) Business Confidence Index rose 1.4 points to 56.5 last month, its highest level since November and well above the 50 mark that denotes a positive economic outlook.

The index for service companies and other non-manufacturers increased to 61.3 while the manufacturing index fell to 52.2, down 7.1 points from its level in March 2015.

The results come a week after the state announced that the unemployment rate dropped to 4.5 percent during February and that employers added 14,400 jobs during the first two months of the year.

“The good news is that the Massachusetts and US economies have proven remarkably resilient in the face of weak growth globally that unsettled financial markets at the beginning of the year,” said Raymond G. Torto, Chair of AIM’s Board of Economic Advisors (BEA) and Lecturer, Harvard Graduate School of Design.

“What happens next? Employers here in Massachusetts appear to be generally optimistic about their prospects during the next six months, though the outlook among manufacturers remains muted by global uncertainty, weakening corporate earnings, the strength of the dollar and rising credit risk.”

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.

Virtually all the sub-indices based on selected questions or categories of employer increased during March after dropping the previous month. The only categories to lose ground during March were Employment and Sales.

The Massachusetts Index, assessing business conditions within the commonwealth, gained 1.1 points to 57.5 in March, down 3.3 points from the year earlier. The U.S. Index of national business conditions narrowly climbed back into optimistic territory, rising 3.4 points for the month to 50.8.

The Current Index, which assesses overall business conditions at the time of the survey, rose 0.6 points to 54.9 while the Future Index, measuring expectations for six months out, surged 2.2 points to 58.1.

“Employers now view the future more positively than current conditions – typically a harbinger of their willingness to invest and grow,” said Elliot Winer, Chief Economist, Northeast Economic Analysis Group LLC and a BEA member.

“Add to that the fact that these employers have now been more optimistic about the Massachusetts economy than about the national economy for 71 consecutive months and it bodes well for the near-term future of the commonwealth.”

The three sub-indices bearing on survey respondents’ own operations were mixed in March.

The Company Index, reflecting overall business conditions, rose 0.8 points to 58.1, but the Sales Index slid 0.2 points to 57.9 and the Employment Index declined by the same 0.2 points to 54.5.

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

“Employers continue to feel good about their own companies, but their view of leading indicators such as sales and employment is sobering. The AIM survey suggests that employers are set to proceed carefully on growing payrolls the rest of the year,” said Michael D. Goodman, Ph.D., Executive Director, the Public Policy Center (PPC) at the University of Massachusetts, Dartmouth.

Confidence levels in February were higher in Greater Boston (58.9) than in the rest of the commonwealth (52.0).

Employers of all sizes recorded positive confidence levels, with the mid-size group lagging behind both larger and smaller companies. 

AIM’s President and CEO Richard C. Lord, a BEA member, said that the plans announced yesterday by GeneralElectric to move its corporate headquarters and some research operations to the South Boston waterfront cannot help but brighten the outlook of the Massachusetts economy.

The move also underscores the importance of state policy that encourages innovation and business formation.

“The ultimate lesson of the GE move is that business costs really do matter. Taxes matter. Fiscal discipline matters. Efficient regulation matters. Work force matters,” Lord said.

“And jobs matter. The creation of a job and a person’s ability to do it weaves together every important aspect of social and economic stability ” the desire for a better life, the ability to support a family, the confidence to start a business, and the need to support efficient government management of services such as education, health care, and public safety.”