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Employers Remain Optimistic, Despite Market Volatility

Posted on February 2, 2016

Confidence among Massachusetts employers remained steady during January as optimism about the state economy offset uncertainty about China and turbulent financial markets.

BCI.January.2016.jpgThe Associated Industries of Massachusetts (AIM) Business Confidence Index rose 0.5 points to 55.8 last month, starting 2016 well above the 50 mark that denotes a positive economic outlook. The increase was driven by a 1.8-point surge in the index measuring employer attitudes about Massachusetts.

Confidence remained lower than it was in January 2015.

“The fact that employer confidence remained solid during a month in which the Standard & Poor’s 500 Index was at one point off 9 percent and oil dropped below $27 a barrel points to the fundamental, underlying strength of the Massachusetts economy,” said Raymond G. Torto, Chair of AIM’s Board of Economic Advisors (BEA) and Lecturer, Harvard Graduate School of Design.

“The Massachusetts Index has been above its national counterpart for 80 consecutive months, and that perception was bolstered by the decision in January by General Electric to locate its corporate headquarters in Boston. GE’s decision was important, not only for the 800 jobs it will bring, but because the company cited Massachusetts’ leadership in knowledge industries as its reason for coming.”

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 ended 2015 down for the year, but remained consistently in optimistic territory for the first 12-month period since the Great Recession.

State Indicator Leads National Counterpart

Most of the sub-indices based on selected questions or categories of employer rose a point or two in January, though all remained down year-over-year.

The Massachusetts Index, assessing business conditions within the commonwealth, jumped 1.8 points to 58.1, starting the year more than a point lower than last January. The U.S. Index of national business conditions slipped to 49.9 on the month, leaving it more than four points lower than a year ago.

The Current Index, which assesses overall business conditions at the time of the survey, increased slightly to 54.6, while the Future Index, measuring expectations for six months out, rose almost a full point to 57.0.

“Employers clearly do not believe that the correction in financial markets signals an overall economic slowdown,” said Alan Clayton-Matthews, Associated Professor of Economics and Public Policy at Northeastern University and a BEA member.

“Massachusetts employers foresee positive business conditions through at least the first half of 2016, and that comports with economic forecasts that Massachusetts will reach full employment during the year.”

Employment Strengthening in 2016

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

The Company Index, reflecting overall business conditions, was up 0.3 points at 57.0; the Sales Index shed 1.1 points to 57.1; and the Employment Index rose 1.3 points to 55.1.

“The increase in the Employment Index is good news for Massachusetts. Our survey found that 39 percent of respondents reported adding staff during the past six months while 19 percent reduced employment,” said Katherine A. Kiel, Professor of Economics, College of the Holy Cross, another BEA member.

“Expectations for the next six months were even stronger ” 37 percent hiring and only 10 percent downsizing.”

Confidence levels in December were similar outside Greater Boston (56.3, +0.3) and within the metropolitan region (56.6, +1.4). Employers in the manufacturing sector continued to be less positive (53.8, -0.3) than other employers (58.4, +1.2).

“Manufacturing is the sector where uncertainty about China and other foreign markets becomes most apparent, though manufacturers remain generally sanguine about the next six months,” Kiel said.

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 the positive economic climate that persuaded General Electric to locate in Massachusetts must be preserved going forward.

“GE’s decision to leave Connecticut underscored the fact that taxes and the business environment matter a great deal to companies in their location decisions,” said Lord, who once worked for GE.

“We look forward to working with the Legislature to ensure that employers all over the commonwealth are able to do what they do best during 2016 ” invest, grow and create opportunity for the people of Massachusetts.”