Massachusetts employers appear to be taking the same wait-and-see attitude about the economy that the Federal Reserve cited in its decision last week to leave interest rates unchanged.
The Associated Industries of Massachusetts Business Confidence Index remained essentially flat during April, falling 0.3 points to 56.2. The reading remained 2.9 points below confidence levels registered a year ago, but still well above the 50 mark that denotes an overall positive economic outlook.
The ambivalence is consistent with a recent run of mixed economic signals.
The U.S. economy grew at its weakest pace in two years during the first quarter as consumers slowed their spending and businesses substantially cut back on investments.
Massachusetts, meanwhile, grew at a much faster annualized rate of 2.3 percent.
“Even as employers continue hiring and the stock market recovers from early-year turmoil, tepid growth indicates that the economy is still being held back by apprehension and caution,” said Raymond G. Torto, Chair of AIM's Board of Economic Advisors (BEA) and Lecturer, Harvard Graduate School of Design.
“The good news is that Massachusetts employers – including manufacturers - remain confident overall in the prospects for their own companies and in the future direction of both the Massachusetts and national economies.”
The AIM Index, based on a survey of Massachusetts employers, 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.
The index has remained above 50 since October 2013.
Virtually all the sub-indices based on selected questions or categories of employer declined slightly during April after rising the previous month. The notable exception was the Manufacturing Index, which rebounded 1.4 points to close some of the gap that recently developed between the manufacturing and service sectors.
The Massachusetts Index, assessing business conditions within the commonwealth, lost 0.2 points to 57.3 in April, down 1.3 points from the year earlier. The U.S. Index of national business conditions declined 0.3 points to remain narrowly in optimistic territory at 50.5.
The Current Index, which assesses overall business conditions at the time of the survey, gained 0.3 points to 55.2 while the Future Index, measuring expectations for six months out, fell 0.8 points to 57.3.
“Employers have now been more optimistic about the Massachusetts economy than about the national economy for 72 consecutive months and the first-quarter growth numbers, along with the recent expansion announcements by General Electric, Alnylam and others will buttress certainly that optimism,” said Paul Bolger, President, Massachusetts Capital Resource Company, and a BEA member.
“The convergence of a vibrant knowledge economy and a well-developed financing infrastructure leaves Massachusetts in an enviable position as the larger national economy looks for direction.”
The three sub-indices bearing on survey respondents’ own operations all showed little change.
The Company Index, reflecting overall business conditions, declined 0.3 points to 57.1, while the Sales Index remained unchanged at 57.9 and the Employment Index dropped by the 0.3 points to 54.2.
The survey found that nearly 26 percent of respondents reported adding staff during the past six months while 22 percent reduced employment. Expectations for the next six months were stable – 36 percent hiring and only 16 percent downsizing.
“The overall strong levels of employer confidence reflect the accelerating pace of economic growth in Massachusetts during the first three months of 2016 after slowing in the second half of last year. Both employment and earnings recorded strong growth and the unemployment rate fell,” said Michael A. Tyler, CFA, Chief Investment Officer, Eastern Bank Wealth Management.
"What's more, the modest weakening of the dollar relative to other currencies boosted the competitiveness of our state's export-oriented manufacturers."
Confidence levels in April were higher in Greater Boston (58.5) than in the rest of the commonwealth (52.4). Employers of all sizes recorded positive confidence levels, with the mid-size group lagging behind both larger and smaller companies.
AIM’s President and CEO Richard C. Lord, a BEA member, said the fact that Massachusetts grew five times faster than the nation as a whole during the first quarter reflects both the commonwealth’s favorable industry mix and enlightened approach to economic policy.
“The House of Representatives has again passed a state budget with no new taxes and the Baker Administration continues to review regulations to determine which rules are necessary and which are not. Both are encouraging steps,” Lord said.
“The challenge now is to ensure that all regions of Massachusetts share in the economic growth taking place so visibly in Greater Boston.”