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Uncertainty Erodes Employer Confidence in August

Posted on September 5, 2013

“The combination of mixed economic reports and recurrent policy uncertainties has meant a bumpy road for employer confidence.”

BCI.August.2013That may be the understatement of the year by Raymond G. Torto, Chairman at CB Richard Ellis Group, Inc. and Chair of the Associated Industries of Massachusetts (AIM) Board of Economic Advisors (BEA).  Torto and other analysts believe that pervasive economic and political uncertainty continue to erode the confidence of Massachusetts employers and, more importantly, the ability of those employers to expand their employment roles.

The most recent evidence came this morning when the AIM Business Confidence Index (BCI) showed that employers fell back into pessimistic territory in August, dropping 3.8 points to 48.7 on a 100-point scale. The decline, which left confidence 6.5 points weaker than its level of a year ago, was driven by growing bearishness about the slowing Massachusetts economy.

Torto said rising interest rates have impeded the housing recovery and raised concerns about the ability of the Federal Reserve to taper off its quantitative easing initiative.

“We also see renewed Congressional deadlock with another debt ceiling crisis looming, and now the possibility of military intervention in the Middle East.  These national and global uncertainties come at a time when the Massachusetts economy is lagging ” growth and job creation are at a near standstill, and consumer confidence is down locally while strengthening nationally. Once again, the weight of multiple uncertainties is holding down robust confidence,” Torto said.

Richard C. Lord, President and Chief Executive Officer of AIM, agreed that the specter of uncertainty is wearing away at employer confidence.

“It’s often been noted that the meltdown of 2008-2009 increased awareness of uncertainty, and we continue to see the effects today,” Lord said.

“When we see the Company Index down 7.2 points on the year ” more than overall business conditions, more than the sales indicator ” that’s a sign of uncertainty, because employers generally expect to surmount challenges they understand. This aspect of business confidence, confidence in one’s own operation, is the key to job creation, and the reason why our Employment Index is off 7.5 points from a year ago.”

The August decline continued an alternating rise-and-fall pattern that has marked the Business Confidence Index for most of 2013. The index rose in May, declined in June and then rose again in July before falling last month to 2.7 points below its starting point for the year.

Employer views of the Massachusetts and national economies continue to converge after several years in which the Bay State drew higher grades than the rest of the country. The Massachusetts Index portion of the BCI lost 3.8 points in August to 44.4, just above the U.S. Index of National Business Conditions at 42. The commonwealth produced just 300 jobs during July after losing 2,100 in June.

“There is no doubt that the state’s economy has lost momentum in recent months,” said Katherine A. Kiel, Professor of Economics at the College of the Holy Cross, a BEA member.

“The unemployment rate has been creeping back up, and the most recent employment report showed essentially no job creation.”

Employer hiring plans continued to lag well behind their view of sales.  The AIM Index found that 29 percent of respondents reported staff reductions while 19 percent added positions.

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.