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Employer Confidence Weakens in February

Posted on March 1, 2016

Confidence among Massachusetts employers weakened for the fifth time in seven months during February, but businesses remain optimistic overall about the ability of the Massachusetts economy to ride out uncertainty abroad and an increasingly curious election season in the United States.

BCI.February.2016.jpgThe Associated Industries of Massachusetts (AIM) Business Confidence Index shed 0.7 points to 55.1 last month, still comfortably above the 50 mark that denotes a positive economic outlook.

However, the reading was 4.7 points below its level of a year earlier, weighed down by growing concern about the slowing U.S. economy. That concern was confirmed Friday when the government said U.S. economic growth slowed to 1 percent during the fourth quarter of 2015.

“We’re seeing some ambivalence among employers as they look at the economy, especially the turmoil in some overseas markets, but all within the range of general optimism about 2016,” said Raymond G. Torto, Chair of AIM’s Board of Economic Advisors (BEA) and Lecturer, Harvard Graduate School of Design.

“Ambivalence indeed seems to define most views of the US economy, as we saw last week when the annual Economic Report of the President noted the strong rebound since 2008 while acknowledging that economic forces, including the rapid pace of technological change, are weighing on American industry.”

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.

National, State Indicators Decline

Virtually all of the sub-indices based on selected questions or categories of employer declined during February and dropped significantly from their levels of February 2015.

The Massachusetts Index, assessing business conditions within the commonwealth, slid 1.7 points to 56.4 in February, down 3.4 points from the year earlier. The U.S. Index of national business conditions remained in negative territory, declining by 2.5 points to 47.4 for the month and by almost eight points during the past year.

The Current Index, which assesses overall business conditions at the time of the survey, dropped by 0.3 points, while the Future Index, measuring expectations for six months out, declined 1.1 points to 55.9.

“Employer views of current conditions and future prospects are almost identical, unlike a year ago when companies were more upbeat looking forward. The February 2016 survey reflects an environment of global uncertainty, characterized by financial market volatility, weakening corporate earnings, and rising credit risk,” said Sara L. Johnson, Senior Research Director, Global Economics, IHS Global Insight and a BEA member.

Operational Views Strengthen

The three sub-indices bearing on survey respondents’ own operations strengthened in February.

The Company Index, reflecting overall business conditions, rose 0.3 points to 57.3, while the Sales Index surged a full point to 58.1. The Employment Index declined slightly by 0.2 points to 54.7.

“Companies feel pretty good when they look at their own prospects and hiring plans,” said Barry Bluestone, Professor of Political Economy at Northeastern University.

The survey found that 38.8 percent of respondents reported adding staff during the past six months while 19 percent reduced employment. Expectations for the next six months were even stronger ” 37 percent hiring and only 10 percent downsizing.

“Once you get past the immediate economic issues, the real story of the Massachusetts economy will be the ability of these growing employers to find people with the skills and education needed for the high-value jobs that are being created,” Bluestone said.

Confidence levels in February were higher in Greater Boston (52.5) than in the rest of the commonwealth (49.4). Employers in the manufacturing sector continued to be less positive (52.1, -1.7) than other employers (58.3, -0.1).
Employers of all sizes recorded positive confidence levels, with the mid-size group lagging behind both larger and smaller companies.

Government Actions Key to Business Climate

AIM’s President and CEO Richard C. Lord, a BEA member, said the February Index underscores both the underlying resilience of the Massachusetts economy and the persistent challenge of ensuring that economic growth benefits all areas of the state.

Noting the difference in confidence levels inside the Boston/Cambridge technology corridor and the rest of the state, Lord said, “How do we as a “common wealth’ address the widening imbalance between the economically thriving economy of Greater Boston and the more traditional economy that dominates the commonwealth from Route 495 to Berkshire County?

“The economy outside Boston depends for its growth upon an industry mix that is far more affected by the high cost structure and heavy regulatory tradition of Massachusetts. That is why it is so important for Beacon Hill lawmakers to be vigilant about controlling the costs of energy, health care and other factors that drive job creation.”