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Employers Maintain 'Show Me' Attitude Toward Economy

  
  
  

Massachusetts employers might just as well be from Missouri these days as they continue to exhibit a “show me” attitude about the strength of the economy.

BCI.March.2014The Associated Industries of Massachusetts Business Confidence Index rose 1.1 points in March to 51.1, holding close to a neutral 50 on its 100-point scale. Bay State employer sentiment has remained locked for 18 months in a narrow range between optimism and pessimism as both the state and national economies have failed to develop sustained growth momentum.

"Business confidence in Massachusetts has been in neutral range for a year, dipping below neutral when there was a threat of federal default and when the government shut down in October, but otherwise with not much upside," said Raymond G. Torto, global Chairman of research at CBRE and Chair of AIM's Board of Economic Advisors (BEA).

Torto and other analysts point to several factors that are holding down confidence, including a generally negative view of national conditions, deadlocked national politics, weak readings among small employers and hiring levels that have been less robust than might be expected during a recovery period.

The AIM confidence index is up a point from its level of last March, but below where it was as recently as September.

The Current Index, tracking employer assessment of existing business conditions, added nine-tenths of a point from February to 49.3, while the Future Index, measuring expectations for the next six months, rose 1.2 to 52.9.

"The numbers are a bit better than February's, and last March's, but still reflect some fear of economic uncertainties," remarked Sara L. Johnson, Senior Research Director of Global Economics at IHS Global Insight, a BEA member. "The fundamentals driving consumer and business spending (incomes, balance sheets, and credit availability) are improving."

The U.S. Index of business conditions prevailing nationally rose 1.9 points in March to 46.2, and the Massachusetts Index of conditions within the commonwealth had a similar gain to 48.6.

Neither increase ignited much hiring, the survey shows. The Employment Index lost 1.3 points to 50.1. Employers, many of them facing pressure on prices, are reluctant to add staff.

"It is increasingly clear that lack of confidence among smaller employers is a serious concern for Massachusetts," said Richard C. Lord, AIM’s President and CEO, a BEA member.

"In our March survey, larger employers were positive about business conditions in our state, but those with 25 employees or fewer were markedly negative. Ours is predominantly a small-employer economy, and our hopes for creating jobs to bring down the unemployment rate – particularly in regions of the commonwealth that are being left behind in the recovery – depend on the growth of those small firms."

Maintain Local Property Tax Exemption: File by April 1 Deadline

  
  
  

april 1 deadline for tax exemptionManufacturing or research and development companies entitled to local property-tax benefits must file the Annual Certification of Entity Tax Status online with the Massachusetts Department of Revenue (DOR) by April 1, 2014 to claim those benefits.

Click here for the DOR resource page for the April 1 filing deadline.

Corporations seeking to maintain (or acquire) favored property-tax status must file by the deadline to ensure that they appear on DOR’s Division of Local Services List of Corporations for 2014.  Cities and towns use “The List” to determine which corporations and entities treated as corporations are entitled to local property tax relief. The List also specifies for Massachusetts tax purposes, businesses that have been granted the “manufacturing corporation” classification.

Joseph X. Donovan, a tax lawyer at Sullivan and Worcester, says because of tax law changes in 2009, the Department of Revenue could no longer use filings with the Secretary of the Commonwealth to alert local officials about the tax status of a company.

“While the change to a new procedure was necessary, there is a real risk that companies —unaware of the new annual filing requirement to protect favored local property tax statuswill find themselves effectively declassified, with potentially very harsh consequences,” Donovan said.

“While they will be able to cure the declassification by challenging it in the Appellate Tax Board, that route can be quite costly. Moreover,  the resolution of any dispute before the Board can take a long time.   We should hope that taxpayers who find themselves before the Board in such circumstances will be permitted to quickly and informally resolve with opposing counsel the ‘foot fault’ of failure to file the form.”

The DOR publishes “The List” electronically on its Web site on or about April 1. Omission from the list or any particular classification may be appealed by the employer.

Here are some resources for employers:

If you have trouble with the registration process, or with accessing your account, please contact DOR Customer Service at 617-887-6367.  If you have questions about completing the Annual Certification of Entity Tax Status online application after reviewing the FAQs, please contact the Division of Local Services.

Should you have any additional questions, please contact Brad MacDougall, Vice President for Government Affairs or 617-262-1180.

Optimism Gap Separates Large, Small Companies in Massachusetts

  
  
  

Size apparently matters when it comes to employer confidence.

Massachusetts Business Confidence INdexThe Associated Industries of Massachusetts Business Confidence Index (BCI) edged off fractionally in February, losing eight-tenths of a point to 50.0, as employers remained unconvinced that signs of strength in the underlying economy will last. Almost lost within the overall confidence reading, however, is a significant optimism gap that has developed between large companies, which hold a relatively bright view of the economy, and smaller employers, who remain more cautious.

Small and mid-size firms participating in the monthly AIM confidence survey remained slightly pessimistic overall (49.0, 49.3) during February, while companies with more than 100 employees were reasonably positive with a 57.8 reading on a 100-point scale.

"Where we see some differences is among employers of various sizes," said Elliot Winer, Chief Economist, Northeast Economic Analysis Group LLC., and a member of the AIM Board of Economic Advisors.

“Small, medium-size, and larger employers all rate Massachusetts business conditions higher than national conditions, and expect conditions to improve over the next six months, but only larger firms are predominantly positive about state and national conditions.  Those with more than a hundred employees are twice as likely as smaller ones to call current conditions for their companies 'good,' and half as likely to call them 'bad.' "

Analysts say the confidence disparity may reflect the fact that the recovery has produced an economy that is better for larger companies than for smaller ones. It may also reflect persistent concerns among employers with fewer than 50 workers about insurance pricing changes under federal health reform that could increase their premiums by more than 50 percent. Also, family-owned retail stores and other small businesses have generally been more severely affected by the persistent bad weather this winter. 

Richard C. Lord, President and CEO of AIM, said the connection between employer confidence and employment opportunities is particularly close for small businesses.

"Job creation and capital investment are bets on the future," Lord noted. "When employers lack confidence, they are reluctant to hire and to invest. Business confidence had fallen drastically with the onset of the recession, and it has recovered slowly – even more slowly, as our Index suggests, than the underlying economy. In fact, unlike the economy, confidence has come to a standstill."

"Here in Massachusetts," he went on, "state government generally responded well to economic and fiscal crisis. Now, the crisis past, our commonwealth would benefit from what the diplomats call 'confidence-building measures,' steps that represent substantive progress but also carry significant value as signs of a commitment to rebuilding a positive business climate. Employer issues, such as the reform of our state's very costly unemployment insurance system, should be seen in this light, as measures that will boost business confidence and produce jobs and investment."  

Company size has been the only factor to generate differences in confidence readings among employers. The February BCI showed similar outlooks among manufacturers (50.3, -0.6) and other employers (49.7, -1.5) as well as among employers outside Greater Boston (49.7, -0.9) and those within the metropolitan area (50.2, -0.8).

Economists say employers in general appear unwilling to jump on the recovery bandwagon, despite objective signs of improvement.

"We noted in our December report that 2013 had been a 'lost year' in terms of business confidence, and we are not seeing any progress in the first months of 2014," said Raymond G. Torto, global Chairman of research at CBRE and Chair of the BEA.

 "The Index's reading is only a point above where it was a year ago, and about at its level of mid-2011, despite substantial improvement in objective economic conditions over that time. It's a telling indication of the long-term damage inflicted on employer sentiment by the Great Recession." 

Massachusetts Economy Continues 'Prolonged Convalescence'

  
  
  

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.

Do Employers Believe in the Recovery?

  
  
  

If an economic recovery takes place and neither employers nor consumers believe it, is it really an economic recovery?

BCI.December.2013Five years after the end of the Great Recession and the halting re-emergence of economic stability, Massachusetts employers remain unimpressed with the nation’s climb out of the 2008 downturn. Employers exhibit little of the enthusiasm that would generally accompany a 29 percent annual gain in the stock market, an economy creating 195,000 jobs per month, and a state growing at 3.5 percent during the third quarter.

All of those developments elevated the Associated Industries of Massachusetts Business Confidence Index just 2.4 points during 2013 as increases and decreases alternated nearly every month. Sluggish confidence suggests to some observers that the psychological effect of the recession, like the downturn itself, was more severe than originally thought.

The Business Confidence Index held steady in December at 50.2, closing 2013 barely above neutral on its 100-point scale.

"In terms of business confidence, 2013 was a lost year despite widespread evidence that the economy continued to strengthen over its course," said Raymond G. Torto, global Chairman of research at CBRE and Chair of AIM's Board of Economic Advisors (BEA).  "Political uncertainties, particularly around fiscal policy, weighed negatively, but this was also true in the previous year – in December 2012 we were on the edge of the 'fiscal cliff.' 

"We are seeing notably pessimistic survey responses from small employers, which might reflect the impact on small business of the government shutdown.   Smaller employers do not have the staying power to weather cash flow disruptions," Torto noted.

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.

The confidence survey indicates that employers remain slightly more bullish about the Massachusetts economy than about the nation as a whole, despite the fact the state economy slowed during the second half of 2013. The U.S. Index of national business conditions added two points during December to 44.8, while the Massachusetts Index, assessing business conditions within the commonwealth, was unchanged at 47.0.

"Year-over-year, the national indicator is up 6.6 points, while the state index gained only two-tenths," said BEA member Katherine A. Kiel, Professor of Economics at the College of the Holy Cross.

"AIM members still rate Massachusetts business conditions higher, even though the state's unemployment rate rose over the year and is now a bit above the national rate."

The Company Index, reflecting survey respondents' assessments of conditions for their own operations, was down 2.2 points in December at 53.3. The Sales Index lost 1.6 to 53.6, and the Employment Index edged up a tenth to 51.1. Confidence was up (+4.5 to 54.1) among manufacturers, but off (-5.8 to 46.9) among other employers.

"The growing confidence of manufacturers is being offset by a striking degree of pessimism amongst firms with fewer than 25 employees, many of whom are located in the Boston area and members of that region's large services sector," said Michael Goodman, Professor of Public Policy at the University of Massachusetts, Dartmouth.  "The disconnect, which bears watching, may be the result of recent improvements in export demand."

Richard C. Lord, President and CEO of AIM, noted that the overall lack of enthusiasm among employers about the recovery may reflect the fact that small businesses continue to struggle even in an economy that is generally improving.

“We don’t track this group separately in our Index, but the problem jumps out from the raw data,” he said. “The Dow went way up in 2013 – those are enormous companies; the S&P went up – those are very big companies; but ours is, more and more, an economy where small employers provide much of the dynamism and many of the jobs. Policymakers must be aware than mandates and regulations that may be bearable for larger companies can become crippling burdens for smaller ones.”

At the same time, Lord said employers should be encouraged at recent signs of a thaw in the Washington partisan gridlock that has created dangerous uncertainty for the business community during the past three years.

Economic Reports Provide Good Cheer - Sort Of

  
  
  

Even the most Scrooge-like economic cynic has to be a bit encouraged this week by a succession of cheery reports that portray a recovery heading into the holidays with a measure of momentum.

Economic ReportsBut employers and economists have a warning – don’t break out the eggnog just yet.

On Tuesday, Associated Industries of Massachusetts announced that its November Business Confidence Index rose 3.5 points to 50.2, extending an up-and-down pattern that has prevailed for most of the year.  The Index is up 3.4 from November 2012, when it was driven down by concerns about the fiscal cliff, and up 3.5 from October, when the federal government shut down.

Two days later, the government reported that the U.S. economy expanded at an annual rate of 3.6 percent in the three months ended September 30, well above the 2.8 percent estimate the Commerce Department gave in late October. The figure marks the fastest rate of economic growth since the fourth quarter of 2011 and represents a significant acceleration from the second quarter, when the economy grew at a rate of just 1.3 percent.

The final report came this morning, when the Labor Department said that the U.S. unemployment rate dropped from 7.3 percent to 7 percent in November, reaching a five year-low on the strength of 203,000 new jobs.  The economy has now generated a four-month average of 204,000 jobs from August through November, up from 159,000 a month from April through July.

Long-term unemployment and underemployment are also declining.

The consecutive reports leave little doubt that the on-again, off-again four-year economic recovery is broadening. The clearest sign of improvement comes from the rising speculation that the Federal Reserve may later this month scale back the quantitative easing stimulus that jump-started the nation out of the Great Recession.

So why the “Bah, Humbug” from many business owners and economists? It may be the multitude of economic, political and business red flags that remain.

The jump in third-quarter economic growth, for example, was driven in large part by increased accumulation of inventory and a jump in federal spending, neither of which is likely to continue in the fourth quarter.  Spending by businesses on equipment and software, meanwhile, declined by 2.7 percent for its first quarterly drop since 2009.

The growth in Gross Domestic Product is “a nice headline number,” Nigel Gault, chief United States economist at IHS Global Insight, told The New York Times, “but it exaggerates the underlying momentum in the economy. Sustainable improvements in growth are not driven by inventories.”

Economists now expect the economy to slow to a 1.6 percent growth rate in the final three months of the year.

Employers also appear to be increasingly exasperated with the persistent budget impasse in Washington.  Economist Michael Tyler from Eastern Bank, a member of the AIM Board of Economic Advisors, said that gyrating business confidence is as much political commentary as economic outlook from Bay State Employers.

"The political goings-on in Washington undermine the confidence of many businesspeople; not one survey respondent rated national conditions 'very good'.  Some state issues may also be lessening confidence at that level," Tyler said.  

Massachusetts may be one of the states where confidence is increasingly at a premium. The state that outperformed the rest of the nation throughout the recession has seen its own jobless rate increase from 6.4 percent to 7.2 percent since the spring as the recession in Europe and the federal budget sequester have landed particularly hard on the commonwealth’s innovation economy.

It all adds up to another “on the one hand,” “on the other hand” year-end for Massachusetts employers. Still, it’s been a good week – we’ll take good news wherever we can find it.

Political Uncertainty Undermines Business Confidence

  
  
  

Political uncertainty continues to whipsaw the economic recovery.

Massachusetts Business ConfidenceMassachusetts employers increasingly confident about the prospects of their own companies remain skittish about the future in the face of serial government shutdowns, default scares and a seemingly intractable partisan fiscal standoff.

The freshest evidence comes this morning from the November Associated Industries of Massachusetts Business Confidence Index, which rose 3.5 points in November to 50.2, extending the up-and-down pattern that has prevailed for some time.  The Index is up 3.4 from last November, when it was driven down by concerns about the fiscal cliff, and up 3.5 from October, when the federal government shut down.

"When left alone, the economy is making progress – but with recurrent uncertainties on the political side, it isn't able to build much momentum," said Raymond G. Torto, Chairman at CB Richard Ellis Group, Inc., the chair of AIM’s Board of Economic Advisors (BEA).

"Coming back from the psychological and economic impact of the federal shutdown, employers still see an upside," said Michael A. Tyler, Chief Investment Officer, Eastern Bank Wealth Management, a BEA member. "They do not expect politics to bring growth to a halt. Also, whether or not current Federal Reserve policy is actually good for the economy today, employers do perceive it as a net positive."

The U.S. Index of business conditions prevailing nationally gained five points in November to 42.8, while the Massachusetts Index of conditions within the Commonwealth rose 2.5 to 47.0.

"These indicators must be read as containing a large component of political commentary," Tyler noted.  "The political goings-on in Washington undermine the confidence of many businesspeople; not one survey respondent rated national conditions 'very good'.  Some state issues may also be lessening confidence at that level. At the same time other indicators, notably those related to respondents' own operations, paint a sunnier picture of the business climate."  

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

Confidence readings have moved in a see-saw pattern since April, alternating modest increases and decreases never far from the neutral 50 level. The gyrations have taken place against the backdrop of a surge in unemployment in Massachusetts from 6.4 to 7.2 percent.

All of the sub-indices based on selected questions or respondent characteristics rose in November along with the main Index, and all were up from November 2012 (a weak month).  The Current Index, tracking employers’ assessment of existing business conditions, added 3.1 points to 49.3, and the Future Index, measuring expectations for the next six months, gained 3.0 to 50.8.

The Company Index, which measures survey respondents’ overall confidence in the situations of their own operations, added 3.8 points in November to 55.5. The Employment Index rose 2.6 to 51.1, and theSales Index gained 2.2 to 55.2.

"The numbers have bounced back to about where they were in September, which is good news," said BEA member Sara L. Johnson, Senior Research Director of Global Economics at IHS Global Insight, "but job creation, which has been a stumbling block for economic progress, remains a concern.”

Analysts say uncertainty has seeped into state issues as well.

"The up-and-down pattern of the Business Confidence Index is part of what has been an up-and-down year for Massachusetts employers and for the state's economy," said Richard C. Lord, AIM’s President and CEO, a BEA member.

"Despite headwinds from federal tax increases and sequestration, economic growth started strong, but then weakened in the second quarter, picked up again in the third, and was probably impaired in this quarter by the shutdown. We've had some ups and downs on Beacon Hill as well, for example over the short-lived tax on software services."

Government Gridlock Sends Confidence Plummeting

  
  
  

The federal government shutdown and potential default on the national debt sent confidence plummeting among Massachusetts employers last month.

BCI.October.2013The Associated Industries of Massachusetts Business Confidence Index lost 4.8 points in October to 46.7, its lowest level in more than year. The downturn was led by a dramatic confidence drop in the national economy as Bay State employers viewed the government shutdown as yet another sign that partisan political battles have left the nation unable to address its serious economic challenges.

"Obviously the shutdown disrupted economic activity," said Richard C. Lord, President and Chief Executive Officer of AIM and a member of the association’s Board of Economic Advisors (BEA).

"But the larger problem for business confidence is that the federal government is not giving us the decisions and action we need – even when it is ostensibly up and running."

 Raymond G. Torto, Chairman at CB Richard Ellis Group, Inc. and Chair of the BEA said the “great majority of survey responses came in during the shutdown, and as a debt ceiling crisis loomed. While the threat of a shutdown had little apparent effect on the September results, the reality in October had a big impact.”  

He noted that while only 13 percent of employers responding to the monthly Business Confidence survey had seen, or expected, direct impact on their operations, another 64 percent believed there were negative effects on overall business confidence and the  economy.

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.

Confidence in the national economy dropped 6.7 points to 37.8. The Massachusetts Index, assessing business conditions within the Commonwealth, meanwhile lost only 2.7 points to 44.5.

The Company Index, reflecting survey respondents' assessments of conditions for their own operations, was down 3.6 points in October at 51.7. The Sales Index was off 2.6 at 53.0, and the Employment Index took a larger loss, dropping 3.4 into negative territory at 48.5.

Employment activity was negative over the previous six months, with 28 percent of respondents reporting staff reductions while 19 percent added positions, but near neutral for the period ahead, as 17 percent planned to add personnel and 18 percent foresaw reductions.

"These numbers might be seen as moderately encouraging in that they suggest prospective stabilization of the employment situation," said Elliot Winer, Chief Economist, Northeast Economic Analysis Group LLC.  . "Unfortunately, the government shutdown has disrupted data services of the Bureau of Labor Statistics and other agencies, leaving us with less information than usual about economic trends."  

Employers: Too Much Uncertainty, Not Enough Momentum

  
  
  

The Associated Industries of Massachusetts Business Confidence Index rose 2.8 points in September to 51.5, continuing a yearlong pattern of fluctuations around the neutral 50 level.

AIM Business Confidence Index"Although there is a very slight upward trend in the quarterly averages of readings, from 48.6 in the fourth quarter of 2012 to 49.8, 50.5, and 50.9 in the third quarter of 2013, the fact remains that the September Index is just about where it was a year ago (51.3)," said Raymond G. Torto, Chairman at CB Richard Ellis Group, Inc., the chair of AIM’s Board of Economic Advisors (BEA).

"We are not seeing the sustained positive employer confidence that is required to spur job creation and bring down the unemployment rate – which has actually ticked up in our state."

Torto noted that business confidence seems to have become less responsive to successive "crises" arising from political deadlock in Washington.

"The initial debt ceiling impasse, and later the 'fiscal cliff,' had negative effects on business confidence, evident in AIM's Index and elsewhere," he pointed out.

"The present deadlock over the federal budget and debt ceiling is not eliciting a similar response, although economists on both sides of the political divide are using words like 'catastrophic' to describe the potential effects of a government shutdown.  Instead of responses to specific threats – which have not so far become realities – there is a consistently negative assessment of national conditions." 

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

Conditions Similar to Year Ago

Most of the sub-indices based on selected questions or respondent characteristics rose in September after falling in June, recovering in July and dropping again in August; most were close to their levels of September 2012.  The Current Index, tracking employers’ assessment of existing business conditions, added 2.9 points to 50.6, and the Future Index, measuring expectations for the next six months, gained 2.7 to 52.4.

"These indicators are back above 50, but what we're really looking at is a seesaw effect with no sustained direction," said Fred Breimyer, Regional Economist, FDIC, a BEA member.  "There is too much uncertainty and not enough momentum to build confidence in the overall economy."  

The U.S. Index of business conditions prevailing nationally gained 2.5 points in September to 44.5, while the Massachusetts Index of conditions within the Commonwealth rose 2.8 to 47.2

"The Federal Reserve's decision to hold to quantitative easing, and perhaps the avoidance of military action in the Middle East, appear to balance fiscal concerns at the national level," Breimyer noted. "In Massachusetts we saw favorable movement on the software tax issue, as well as the best employment report in several months."

Employment Prospects Brighter, but Manufacturing Confidence Lags

The Company Index, which measures survey respondents’ overall confidence in the situations of their own operations, added 2.9 points in September to 55.3. The Employment Index added 3.2 to 51.9, and the Sales Index gained 1.7 to 55.6.

 "The employment number is positive again after a dip, which is good news," said AIM Senior Advisor André Mayer, who compiles the Business Confidence Index. "Although most employers are standing pat on staffing, more reported additions than decreases in the past six months (27% - 22%), and the expected ratio for the next six months is better (21% - 11%). These results appear to bear out the state's most recent employment report, which indicated a resumption of job creation."

Confidence was up slightly in September among manufacturers (+1.7 to 49.1), and more strongly among other employers (+4.9, 55.2).

"Manufacturers, who were less positive than other employers on every question, are currently facing adverse conditions, especially in key export markets," Mayer noted.  "In other sectors, the move to repeal the new state software tax may be seen as favorable not only by firms affected directly, but also by others concerned about a broader tax on services."  Confidence was up within Greater Boston (+4.4 to 54.4) and down in the rest of the state (-1.3 to 45.7) where manufacturing predominates over services in the economy. 

Policy Does Affect Confidence

"Except in cases where there is a hugely disruptive economic development, it is usually difficult to attribute results of our Business Confidence Survey to specific issues – but this month I think we can," said Richard C. Lord, AIM’s President and CEO, a BEA member. "Beacon Hill's timely response to consternation in the business community by repealing the under-considered tax on software services surely played a part in improving employer perceptions of the Commonwealth's business climate, particularly evident in responses from the services sector."

Uncertainty Erodes Employer Confidence in August

  
  
  

"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.

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