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Archived: Government Gridlock Sends Confidence Plummeting

Posted on November 5, 2013

The federal government shutdown and potential default on the national debt sent confidence plummeting among Massachusetts employers last month.

BCI.October.2013The Associated Industries of Massachusetts Business Confidence Index lost 4.8 points in October to 46.7, its lowest level in more than year. The downturn was led by a dramatic confidence drop in the national economy as Bay State employers viewed the government shutdown as yet another sign that partisan political battles have left the nation unable to address its serious economic challenges.

“Obviously the shutdown disrupted economic activity,” said Richard C. Lord, President and Chief Executive Officer of AIM and a member of the association’s Board of Economic Advisors (BEA).

“But the larger problem for business confidence is that the federal government is not giving us the decisions and action we need ” even when it is ostensibly up and running.”

Raymond G. Torto, Chairman at CB Richard Ellis Group, Inc. and Chair of the BEA said the “great majority of survey responses came in during the shutdown, and as a debt ceiling crisis loomed. While the threat of a shutdown had little apparent effect on the September results, the reality in October had a big impact.”

He noted that while only 13 percent of employers responding to the monthly Business Confidence survey had seen, or expected, direct impact on their operations, another 64 percent believed there were negative effects on overall business confidence and the  economy.

The AIM Index 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.

Confidence in the national economy dropped 6.7 points to 37.8. The Massachusetts Index, assessing business conditions within the Commonwealth, meanwhile lost only 2.7 points to 44.5.

The Company Index, reflecting survey respondents’ assessments of conditions for their own operations, was down 3.6 points in October at 51.7. The Sales Index was off 2.6 at 53.0, and the Employment Index took a larger loss, dropping 3.4 into negative territory at 48.5.

Employment activity was negative over the previous six months, with 28 percent of respondents reporting staff reductions while 19 percent added positions, but near neutral for the period ahead, as 17 percent planned to add personnel and 18 percent foresaw reductions.

“These numbers might be seen as moderately encouraging in that they suggest prospective stabilization of the employment situation,” said Elliot Winer, Chief Economist, Northeast Economic Analysis Group LLC.  . “Unfortunately, the government shutdown has disrupted data services of the Bureau of Labor Statistics and other agencies, leaving us with less information than usual about economic trends.”