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Massachusetts Employers Turn Bearish about the Future

Posted on November 1, 2011

Massachusetts employers grew increasingly bearish last month about an economy still hampered by weak consumer spending, housing problems and the inability of Washington to resolve the budget deficit.

AIM Business Confidence IndexThe AIM Business Confidence Index (BCI) declined for the fifth time in six months during October, losing two points to 46.4 on a 100-point scale. Employers turned particularly pessimistic about the future, with the outlook for the next six months dropping 3.2 points to 45.

The October confidence readings were taken before the government announced last week that U.S. economic growth doubled during the third quarter to 2.5 percent.

“Significantly, the Future Index is well below the Current Index which reflects growing pessimism about the near term trajectory of the economy” said Michael Goodman, Associate Professor and Chair of the Department of Public Policy at the University of Massachusetts Dartmouth.

More than 60 percent of survey respondents expect negative economic conditions over the next six months while only 4 percent expect good conditions.  Those readings stand in stark contrast to those of a year ago when the Current Index stood at 53.2 and the Future Index at 57.0, reflecting a more positive growth outlook.

“Compared to a year ago, Massachusetts employers are much more negative in their assessment of national business conditions, and have lost their optimism about future growth,” said Raymond G. Torto, Global Chief Economist at CB Richard Ellis Group, Inc. and Chair of AIM’s Board of Economic Advisors (BEA).

“Weak consumer spending continues to depress business confidence and it is increasingly clear that problems in the housing market continue to have a major impact on the consumer side.”

Confidence among Massachusetts employers has declined by 10 points since hitting 56.1 in April. BCI readings below 50 indicate a predominantly negative outlook on business conditions.

Employers continue to hold a brighter view of their own prospects than those for the economy at large. The three portions of the BCI that measure company outlook all remained positive or only marginally negative –  the broad Company Index shed 1.6 points to 51.9, the Sales Index was off 3.2 to 49.3 and the Employment Index added a half point to 50.9.

Richard C. Lord, President and Chief Executive Officer of AIM, said dimming employer confidence reflects the multiple and complex challenges facing the economy, from European debt to housing.

“And our state, with its concentrations of defense industries and of health care and educational institutions, is particularly vulnerable to federal budget cuts now under consideration,” he said.

The AIM Index has appeared monthly since July 1991. It reached its historic high of 68.5 on two occasions in 1997-98, and its all-time low of 33.3 in February 2009.