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Massachusetts Economy Continues ‘Prolonged Convalescence’

Posted on February 4, 2014

Raymond G. Torto, global Chairman of Research at CBRE and Chair of AIM’s Board of Economic Advisors (BEA) uses a medical metaphor to explain the meandering pattern of business confidence in Massachusetts.

BCI.January.2014“The ongoing strengthening of the economy still feels more like a prolonged convalescence than like robust health. Consumer confidence reports are mixed; federal spending cuts continue to affect Massachusetts companies and institutions; quantitative easing is winding down; the Affordable Care Act is raising more issues for many employers than expected; and financial problems in emerging economies cast a shadow on global prospects,” said Torto.

“For all the progress we have made, business confidence remains vulnerable to such concerns.”  

That vulnerability was again apparent at the beginning of 2014 as the Associated Industries of Massachusetts Business Confidence Index added six-tenths of a point to 50.8 on a 100-point scale. Confidence remains barely above neutral and barely better than the 50.4 reading in January 2013.

Richard C. Lord, President and Chief Executive Officer of AIM, said the January confidence number extends a pattern of small monthly gains or losses that goes back more than a year. He said tepid confidence among employers underscores the need for Massachusetts to build economic momentum to break out of the slow-growth pattern that has held the commonwealth in its grip since the Great Recession.

“That immediate goal of sustainable growth requires us to address two long-term concerns,” Lord said.

“One is excessive business costs, which in a global business environment challenge employers daily. These include health care above all, but also unemployment insurance, taxes, and electric rates. “

The second challenge, according to Lord, is a pervasive shortage of trained and qualified employees.

“Ask any Massachusetts employer about what worries him or her most and you’ll hear the same response: ‘I can’t find enough qualified people to run my business.’ It’s a concern shared by technology and bioscience enterprises in Cambridge, manufacturing companies in the Pioneer Valley, health care providers in Worcester, and restaurants and hotels throughout the Commonwealth.”

He maintained that Massachusetts must move on to a new phase of K-12 school reform, press forward with the improvement of the higher education system, and train both students and current workers to master the demanding skills that drive areas such as high-value manufacturing, information technology and health care.

The specific confidence readings that make up the AIM Index also continued to move in a narrow range.

The Current Index, tracking employers’ assessment of existing business conditions, was up a tenth of a point on the month, and down two-tenths for the year, at 48.7. The Future Index, measuring expectations for the next six months, added four-tenths on the month, and one tenth on the year, at 52.0.

The Company Index, which measures survey respondents’ overall confidence in the situations of their own operations, added four-tenths of a point in January to 53.7. The Sales Index, however, shed four-tenths to 53.2, while the Employment Index lost six-tenths to 50.6.

“A closer look at the employment results reveals that employers reporting personnel reductions over the past six months outnumbered those adding staff, 25 percent to 19 percent,” noted BEA member Fred Breimyer, regional economist at the FDIC. “The outlook for the next six months is rosier, as 25 percent of respondents expect to add staff while 14 percent foresee reductions.”

Confidence was off in January among manufacturers (50.6, -3.5) and up among other employers (51.2, +4.3).

“The emerging economies currently experiencing financial turmoil may not themselves be major export markets for Massachusetts exporters, but the situation poses a threat to global trade generally,” Breimyer said.