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Employers: Too Much Uncertainty, Not Enough Momentum

Posted on October 1, 2013

The Associated Industries of Massachusetts Business Confidence Index rose 2.8 points in September to 51.5, continuing a yearlong pattern of fluctuations around the neutral 50 level.

AIM Business Confidence Index“Although there is a very slight upward trend in the quarterly averages of readings, from 48.6 in the fourth quarter of 2012 to 49.8, 50.5, and 50.9 in the third quarter of 2013, the fact remains that the September Index is just about where it was a year ago (51.3),” said Raymond G. Torto, Chairman at CB Richard Ellis Group, Inc., the chair of AIM’s Board of Economic Advisors (BEA).

“We are not seeing the sustained positive employer confidence that is required to spur job creation and bring down the unemployment rate ” which has actually ticked up in our state.”

Torto noted that business confidence seems to have become less responsive to successive “crises” arising from political deadlock in Washington.

“The initial debt ceiling impasse, and later the ‘fiscal cliff,’ had negative effects on business confidence, evident in AIM’s Index and elsewhere,” he pointed out.

“The present deadlock over the federal budget and debt ceiling is not eliciting a similar response, although economists on both sides of the political divide are using words like ‘catastrophic’ to describe the potential effects of a government shutdown.  Instead of responses to specific threats ” which have not so far become realities ” there is a consistently negative assessment of national conditions.” 

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. 

Conditions Similar to Year Ago

Most of the sub-indices based on selected questions or respondent characteristics rose in September after falling in June, recovering in July and dropping again in August; most were close to their levels of September 2012.  The Current Index, tracking employers’ assessment of existing business conditions, added 2.9 points to 50.6, and the Future Index, measuring expectations for the next six months, gained 2.7 to 52.4.

“These indicators are back above 50, but what we’re really looking at is a seesaw effect with no sustained direction,” said Fred Breimyer, Regional Economist, FDIC, a BEA member.  “There is too much uncertainty and not enough momentum to build confidence in the overall economy.”  

The U.S. Index of business conditions prevailing nationally gained 2.5 points in September to 44.5, while the Massachusetts Index of conditions within the Commonwealth rose 2.8 to 47.2

“The Federal Reserve’s decision to hold to quantitative easing, and perhaps the avoidance of military action in the Middle East, appear to balance fiscal concerns at the national level,” Breimyer noted. “In Massachusetts we saw favorable movement on the software tax issue, as well as the best employment report in several months.”

Employment Prospects Brighter, but Manufacturing Confidence Lags

The Company Index, which measures survey respondents’ overall confidence in the situations of their own operations, added 2.9 points in September to 55.3. The Employment Index added 3.2 to 51.9, and the Sales Index gained 1.7 to 55.6.

 “The employment number is positive again after a dip, which is good news,” said AIM Senior Advisor Andr̩ Mayer, who compiles the Business Confidence Index. “Although most employers are standing pat on staffing, more reported additions than decreases in the past six months (27% – 22%), and the expected ratio for the next six months is better (21% – 11%). These results appear to bear out the state’s most recent employment report, which indicated a resumption of job creation.”

Confidence was up slightly in September among manufacturers (+1.7 to 49.1), and more strongly among other employers (+4.9, 55.2).

“Manufacturers, who were less positive than other employers on every question, are currently facing adverse conditions, especially in key export markets,” Mayer noted.  “In other sectors, the move to repeal the new state software tax may be seen as favorable not only by firms affected directly, but also by others concerned about a broader tax on services.”  Confidence was up within Greater Boston (+4.4 to 54.4) and down in the rest of the state (-1.3 to 45.7) where manufacturing predominates over services in the economy. 

Policy Does Affect Confidence

“Except in cases where there is a hugely disruptive economic development, it is usually difficult to attribute results of our Business Confidence Survey to specific issues ” but this month I think we can,” said Richard C. Lord, AIM’s President and CEO, a BEA member. “Beacon Hill’s timely response to consternation in the business community by repealing the under-considered tax on software services surely played a part in improving employer perceptions of the Commonwealth’s business climate, particularly evident in responses from the services sector.”