Massachusetts employers remain marginally optimistic but cautious as the economy reaches an inflection point on inflation, employment and other key measures.

The Associated Industries of Massachusetts Business Confidence Index (BCI) fell 1.0 point in August to 51.0. The reading was 1.4 points less than a year ago and slightly above the 50 mark that separates negative and positive outlooks.

The survey came as the government reported that inflation remained steady at 2.5 percent in July, paving the way for the Federal Reserve to reduce interest rates later this month. The labor market, meanwhile, continued to cool, driving the Massachusetts unemployment rate to its highest level in four years at 4.6 percent.

“The good news is that 12-month inflation, measured by the personal consumption deflator, held steady in July and consumer spending was robust. At the same time, employers in Massachusetts and across the country have turned more cautious amid concerns about the slowing economy and federal tax, spending, and regulatory policies after the November elections,” said Sara Johnson, Chair of the AIM Board of Economic Advisors (BEA), which oversees the BCI.

The AIM Index, based on a survey of more than 140 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.

Employers who participated in the survey reflected a tone of economic ambivalence.

“Over the past few months, I have noticed an increased number of unemployed people through my network, in particular across bio and tech. I am also seeing consumers pulling back on spending,” said one service-industry employer.

But another observed: “We are finishing up our slow summer season, and on track for an even better fall than last year.”

Confidence varied regionally across the Commonwealth. The Central Massachusetts Business Confidence Index, conducted with the Worcester Regional Chamber of Commerce, declined 47.5 to 44.6; the Western Massachusetts Business Confidence Index, developed in collaboration with the Springfield Regional Chamber of Commerce, fell from 53.6 to 50.0; and the North Shore Confidence Index, conducted with the North Shore Chamber of Commerce, surged from 48.0 to 54.1.

Constituent Indicators 

The constituent indicators that make up the Index were mostly lower in August.

The confidence employers have in their own companies was down slightly, falling 0.2 point to 52.7. That figure was essentially the same as a year ago but better than the overall BCI. While employers have doubts about the state and national business environment, they are confident about the ability of their own enterprises to prosper.

The Massachusetts Index assessing business conditions within the Commonwealth dropped 1.7 points to 49.9, leaving it 3.6 points below its level of August 2023. The US Index measuring conditions throughout the country declined 2.6 points to 47.0, down 3.0 points over the past 12 months.

The Current Index, which assesses overall business conditions at the time of the survey, lost 0.4 point to 51.3. The Future Index predicting conditions six months from fell 1.7 points to 50.6.

The Manufacturing Index gained 2.1 points to 48.2 last month but remained below the overall confidence reading. The Employment Index dipped into pessimistic territory at 49.5.

Medium-sized companies (51.9) were more optimistic than large companies (51.6) or small companies (49.4).

Suzanne Dwyer, President of the Massachusetts Capital Resource Company and a BEA member, said the employer caution is underscored by the fact that the Future Index in August is lower than the Current Index.

“The shifts in the economy appear to be segmenting business confidence by industry, geography and company size. Confidence among manufacturers, for example, continues to be weaker than the overall outlook, and layoffs in the technology sector have eroded confidence in that area as well,” Dwyer said.

Pass the Economic Development Bill

AIM President and CEO Brooke Thomson, also a BEA member, said the association strongly supports calls by Governor Maura Healey and legislative leaders for a special session to pass the multi-billion economic development bill that failed to cross the finish line when Beacon Hill wrapped up formal sessions on August 1.

“At a time of accelerated competition from other states, Massachusetts cannot wait until the next year to put its economic-development stake in the ground,” Thomson said.

“The Mass Leads Act will be a catalyst for the continued economic vibrancy of Massachusetts and continued opportunity for the citizens of the commonwealth. The bill is simply too important to fail.”