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Employer Confidence Drops Amid Signs of Slowdown

  
  
  

Confidence among Massachusetts employers slipped in May amid growing signs that the economic recovery is sputtering.

AIM Business Confidence IndexThe Associated Industries of Massachusetts Business Confidence Index dropped 4.4 points in May to 51.7. The reading was virtually identical to the 51.5 posted in May 2010, but still above the 50 level that signals a predominantly optimistic view of the economy.

“A series of economic reports is telling us what AIM members were seeing in mid-May – disappointing growth and job creation, weakness in manufacturing and real estate, and declining consumer confidence locally and nationally, along with renewed turmoil in the euro zone and its impact on financial markets,” said Raymond G. Torto, Global Chief Economist at CB Richard Ellis Group, Inc., the chair of AIM’s Board of Economic Advisors (BEA).

“The economy, as we’ve often noted, is getting better but remains far from healthy, so it will be subject to relapses like this,” Torto added

Every component of the Business Confidence Index lost ground in May. The largest drop came in the Company Index, which measures survey respondents’ overall confidence in the situations of their own operations. The Company Index, which has been the area of strongest confidence for employers throughout the recovery, dropped 6.6 points in May to 54.7.

The two other company-specific sub-indices also fell, the Sales Index by 6.8 to 54.1 and the Employment Index by 6.0 to 51.9.

“Employers, who had been quite positive about their own operations in recent months, are apparently more uncertain future business conditions,” said BEA member Sara L. Johnson, Senior Research Director, Global Economics, IHS Global Insight.

Confidence was off both among manufacturers (-3.2 to 54.6) and other employers (-5.5 to 47.7). It also fell both in Greater Boston (-3.6 to 43.0) and outside the metropolitan area (-6.5 to 49.0). There was no clear pattern of responses by size of company.

“Manufacturing has played a leading part in this economic recovery, and our state’s technology and health science clusters, selling into global markets, have done quite well,” Johnson said. “Manufacturers and service providers that depend on consumer spending have not fared as well in an environment of weak real income growth.” 

Publication of the May Business Confidence Index comes four days after the U.S. Labor Department reported that the national unemployment rate rose to 9.1 percent in May and that employers added their fewest jobs in eight months. The economy grew at a sluggish 1.8 percent in the first quarter and is generating approximately half the number of jobs needed just to keep pace with population growth.

Richard C. Lord, AIM’s President and CEO, a BEA member, said that economic uncertainty dampens business confidence, particularly on investment and hiring decisions.

“Employers who are in doubt about the future – who may have difficulty even getting a clear read on where they stand today – are naturally reluctant to commit to bricks and mortar, or costly new equipment, or especially to bringing on and training new employees,” he said.

AIM’s Business Confidence Index, issued monthly since July 1991, uses a 100-point scale with 50 as neutral, and score above or below 50 indicating predominant positive or negative assessment of business conditions. Its historical high was 68.5, attained in 1997 and 1998; its all-time low was 33.3 in February 2009

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