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Strengthening Employer Confidence Spurs Job Growth

Posted on August 5, 2014

Employer confidence surged again in Massachusetts during July amid a growing sense of economic normalcy.

BCI.July.2014The Associated Industries of Massachusetts Business Confidence Index (BCI) added 2.5 points to 56.2, up 6.2 points from January and 3.7 points from its level of July 2013. The results were noteworthy in part because employer perceptions of the national economy returned to positive territory for the first time since before the Great Recession in August 2007.

“Business confidence in Massachusetts, after sliding into the neutral range for more than a year, has climbed back to within a point of its post-recession high of 57.1 in April 2012,” said Raymond G. Torto, Chair of AIM’s Board of Economic Advisors (BEA) and Lecturer, Harvard Graduate School of Design. The Index was up 3.7 points compared to July 2013.

“The biggest year-to-year gainers among our sub-indices are those tracking general business conditions in the state and nation, which appears to reflect a growing sense among employers that they are operating in something like a ‘normal’ economy.”

The recent upturn in employer confidence follows 18-months in which attitudes meandered without clear direction in a narrow range. Uncertainty arising from political deadlock in Washington and the threat of financial crisis in Europe, plus fiscal drag from tax increases and unsteady economic growth in the U.S. and globally, held down confidence.

AIM’s Business Confidence Index has been issued monthly since July 1991 under the oversight of the Board of Economic Advisors. Presented on a 100-point 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. 

The biggest dividend from improving employer confidence is accelerated job growth. The BCI Employment Index added 1.4 points to 56.0, and the Sales Index edged up three-tenths to 57.9. Each was up between two and three points on the year.

“Many Massachusetts employers added staff in the first half of the year, with additions outweighing reductions by almost three to one (34 percent-12 percent), and expectations for the next six months are similar,” said Sara L. Johnson, Senior Research Director of Global Economics at IHS Global Insight, a BEA member. “Greater confidence in the stability of the economy is at last making employers more willing to hire.”

The Current Index, tracking employers’ assessment of existing business conditions, added three points from June to 55.8, while the Future Index, measuring expectations for the next six months, rose two points to 56.6.

The U.S. Index of business conditions prevailing nationally rose 3.7 points in July to 51.9, and the Massachusetts Index of conditions within the commonwealth gained 4.9 to 55.8. Compared to last July, these sub-indices were up 5.9 and 6.4 respectively.

“For the first time since before the Great Recession, our U.S. Index has returned to positive ground above 50,” said Richard C. Lord, President and Chief Executive Officer of AIM.

“This sub-index was the laggard, and in fact it is clear that lack of confidence in the ability of the federal government to provide effective policy direction on fiscal and economic matters substantially impeded the recovery as a whole. The growth of business confidence in recent months appears to be based in large part on an expectation that private-sector demand has finally turned a corner, rendering the economy less vulnerable to political disruption.”