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Employer Confidence Rises for Fifth Consecutive Month

Posted by Christopher Geehern on Feb 7, 2017 8:42:41 AM

Confidence among Massachusetts employers rose for the fifth consecutive month during January despite a marked slowdown in economic growth during the fourth quarter of 2016.

BCI.January.2017.jpgThe Associated Industries of Massachusetts Business Confidence Index (BCI) rose one point to 61.4 last month, a full 5.6 points higher than a year earlier and the highest reading since December 2004. The confidence increase came during a month when the Massachusetts unemployment rate fell to 2.8 percent and Bay State employers created more than 72,000 new jobs for the year.

At the same time, national economic growth slowed to an annual rate of 1.9 percent during the final three months of 2016, while the Massachusetts economy downshifted to a 0.5 percent growth rate from 3.1 percent during the third quarter.

“The good news is that unemployment in Massachusetts remains well below the national rate of 4.7 percent, but that low jobless rate may also be creating labor-force capacity constraints that are slowing output,” said Raymond G. Torto, Chair of AIM's Board of Economic Advisors (BEA) and Lecturer, Harvard Graduate School of Design.

“Employer confidence seems to be tracking the overall optimism of financial markets that continue to hit record highs. It will be instructive to see how that enthusiasm holds up as Congress and the new administration get down to the business of governing.”

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.

Constituent Indicators Uniformly Higher

All of the sub-indices based on selected questions or categories of employer were up to start 2017.

The Massachusetts Index, assessing business conditions within the commonwealth, rose to 61.8, leaving it 5.2 points ahead of the same time last year.

The U.S. Index of national business conditions inched up 0.1 points to 57.6 - 7.5 points higher than in January 2016. January marked the 81st consecutive month in which employers have been more optimistic about the Massachusetts economy than the national economy.

The Current Index, which assesses overall business conditions at the time of the survey, increased 0.3 points to 59.4 while the Future Index, measuring expectations for six months out, rose 1.6 points to 63.3. The future outlook was 6.1 points better than a year ago and higher than at any point since March 2015.

Operational Views Strengthen

The sub-indices bearing on survey respondents’ own operations also strengthened.

The Company Index, reflecting overall business conditions, rose one point to 61.9 while the Employment Index gained 1.2 points to 58.4 and the Sales Index 0.7 points to 62.1.

The AIM survey found that nearly 39 percent of respondents reported adding staff during the past six months while 18 percent reduced employment. Expectations for the next six months were stable – 37 percent hiring and only 10 percent downsizing.

“One of the elements driving the overall increase in employer confidence is a rapidly brightening outlook among manufacturers,” said Katherine A. Kiel, Ph.D., Professor of Economics, College of the Holy Cross in Worcester and a BEA member.

“The AIM Manufacturing Index has risen 8.5 points during the past five months, driven by a positive outlook on sales and hiring. Manufacturing optimism also bodes well for capital investment and research and development going forward.”

Companies in the eastern part of the Massachusetts were more optimistic at 63.0 than those in the western part of the state at 59.0.

AIM President and CEO Richard C. Lord, also a BEA member, said the emerging labor-force constraints underscore the importance of maintaining a world-class training and education system in Massachusetts. He noted that in the area of manufacturing, AIM has filed legislation to provide a 50 percent tax credit for eligible expenses for employees who receive certification through the Massachusetts Manufacturing Advancement Center Workforce Innovation Collaborative’ s (MACWIC) Applied Manufacturing Technology Pathway Certification Program.

“As employers find it increasingly difficult to locate appropriately skilled employees, we are reminded that our economic future depends upon the ability of Massachusetts to educate all children and all incumbent workers with the knowledge our companies need to prosper in a complex global economy,” Lord said.

Topics: AIM Business Confidence Index, Massachusetts economy, Economy

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