AIMBlog_Logo_Resized

Massachusetts Employer Optimism Grows at Halfway Point of 2014

Posted by Andre Mayer on Jul 1, 2014 9:41:47 AM

BCI.June.2014As the Massachusetts economy reaches the halfway mark of 2014, we know several important things about the mindset of Bay State employers:

  • They are far more confident about the sustainability of the economic recovery than they were are the beginning of the year;
  • Their persistent skepticism about the inability of government to manage fiscal issues has abated, at least for the moment;
  • Small companies, which held a far darker view of the economy than their larger counterparts for 18 months, have now grown equally optimistic as the overall economy has strengthened;
  • They remain more bullish about the Massachusetts economy than the national outlook, though the gap between the two is closing.

The Associated Industries of Massachusetts Business Confidence Index (BCI) declined slightly to 53.7 percent in June, but the gauge remains almost three points above its January reading and 4.7 points more than in June 2013. The Index, released this morning, posted an overall confidence reading of 53.8 for the second quarter.

"The positive quarterly average, reflects the diminution in recent months of major economic policy conflict in Washington which has contributed to stronger business confidence," Raymond Torto, global Chairman of research at CBRE and Chair of the AIM Board of Economic Advisors (BEA) noted.

"With less ambient uncertainty, employers are becoming more positive about adding personnel, a sign of confidence that is reflected in our survey," Torto added. "The other notable improvement is in responses from small employers, those with 25 or fewer employees, who are now about as optimistic as mid-size firms."

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. In June 2013 it stood at 48.9.

Every measure of employer confidence has strengthened during the past 12 months.

The Current Index, which assesses overall business conditions at the time of the survey, was 4.1 points above last June’s level at 52.8, and the Future Index, measuring expectations for six months out, was up 6.7 from a year before at 54.6. The Massachusetts Index, assessing business conditions within the commonwealth was up 3.3 points on the year to 50.9, and the U.S. Index of national business conditions was 7.6 ahead of last June at 48.2.

"Massachusetts has generally outperformed the nation economically since the onset of the recession," said Alan Clayton-Matthews, professor at the School of Public Policy and Urban Affairs at Northeastern University, a BEA member."Our state is well positioned to continue to thrive, but is inevitably standing out less as the rest of the country returns to normal performance."

"The employment results, even with a marginal loss for the month, continue to reflect a moderate upward trend," said BEA member Elliot Winer, Chief Economist, Northeast Economic Analysis Group LLC. "Among employers responding to the survey, 41 percent expected to add personnel in the next six months, while only 10 percent foresaw staff reductions, a marked improvement from the already positive 38 percent-23 percent split for the prior six months."

Richard C. Lord, President and CEO of AIM and a BEA member, said two areas of improvement are particularly significant.

"Small employers are much more confident than they had been, and are looking to add jobs, which speaks to a revival of the entrepreneurial spirit so important to our economic future," he noted. And, he added, the overall change of attitude among employers towards a great willingness to hire "offers hope that we are definitively past the ‘jobless recovery’ phase and can continue to bring unemployment down across the commonwealth."

Topics: AIM Business Confidence Index, Massachusetts economy, Economy

Employer Confidence Hits 21-Month High

Posted by Andre Mayer on Jun 3, 2014 9:47:00 AM

Confidence among Massachusetts employers surged to its highest level in 21 months during May, raising expectations that hiring and capital investment will follow.

BCI.May.2014The Associated Industries of Massachusetts Business Confidence Index rose 1.8 points to 54.8, its highest reading since August 2012 (55.2).

"With its gains in April and May, the Index appears to have broken out of the narrow range within which it had fluctuated for the previous 18 months," said Raymond G. Torto, global Chairman of research at CBRE and Chair of AIM's Board of Economic Advisors (BEA).

"Economic conditions have been improving at the state and national levels, and in fact globally, but until now sentiment among Massachusetts employers has lagged behind. As a higher level of confidence becomes established, we should see more investment and job creation in our commonwealth."

The rise in employer confidence crossed industry sectors, company sizes and regions of the commonwealth. Even small businesses, which have been far more bearish than larger employers throughout the recovery, tilted toward the positive side in May.

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. 

Business confidence had been treading in a narrow range around neutral for the past 18 months as a sluggish recovery and fiscal battles in Washington left employers reluctant to take risks. The three-month confidence rally comes amid accelerating job growth that has reduced the U.S. unemployment rate and boosted Massachusetts job levels to an all-time high. The Massachusetts economy grew at an estimated 2.6 percent annual rate in the first quarter after surging 4.4 percent during the final three months of 2013.

The Current Index, tracking employers’ assessment of existing business conditions, added 2.1 points from April to 53.5, while the Future Index, measuring expectations for the next six months, rose 1.6 to 56.1.

"These results, though only moderately positive, look reasonably good against the background of the national economy's uneven performance so far this year," remarked Fred Breimyer, regional economist at the FDIC. "Among survey respondents, expectations of stability and growth are now predominating over fear of uncertainty."

The U.S. Index of business conditions prevailing nationally rose 3.3 points in May to 49.7, and the Massachusetts Index of conditions within the commonwealth was up three points to 53.0.

"The U.S. Index, although literally neutral, is at its best level since October 2007, which was its last reading above 50 (51.0)," Breimyer said. "Also, it is worth noting that the national index has been below its state counterpart every month for five years."  

The Company Index, which measures survey respondents’ overall confidence in the situations of their own operations, added a point in May to 57.1. The Sales Index gained 1.9 points to 58.2, while the Employment Index, after surging in April, held at 54.8.

Richard C. Lord, President and Chief Executive Officer at AIM, said the AIM index underscores the important of policymakers creating a stable economic environment for employers.

"We are on the right course," he concluded, "and we should stay the course. Concluding the debate about UI reform and enacting a constructive jobs bill that does not change the current policy on non-compete agreements would end the session on a positive note. The best public policy right now is to avoid rocking the boat."

Topics: AIM Business Confidence Index, Massachusetts economy, Jobs

Economic Warmup Thaws Employer Confidence

Posted by Andre Mayer on May 6, 2014 11:46:00 AM

Is a warming economy finally melting employers’ frosty view of the recovery?

BCI.April.2014The Associated Industries of Massachusetts Business Confidence Index for April suggests that the answer may be yes.

The Index added 1.9 points in April to 53.0, its best reading more than a year and a half. It marked the second consecutive month of improving employer confidence and left the Index a full 2.5 points above its level at the beginning of the year.

"The last time the Index was at or above this level was in August 2012, just before the impending 'fiscal cliff' crippled confidence in fiscal policy leadership," said Raymond G. Torto, global Chairman of research at CBRE and Chair of AIM's Board of Economic Advisors (BEA).

"Since then we have been stumbling along, with ups and downs but no real forward momentum. While this could be another more or less random fluctuation, we have reason to hope that employer confidence is finally beginning to catch up with improving economic fundamentals."

Those fundamentals include accelerating job growth that has reduced the U.S. unemployment rate to 6.3 percent and boosted Massachusetts job levels to an all-time high. The Massachusetts economy grew at an estimated 2.6 percent annual rate in the first quarter after surging 4.4 percent during the final three months of 2013.

“We are seeing steady if not spectacular job creation both nationally and here in Massachusetts, where we have set a new record for total employment," Torto said.

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. In April 2013 it stood at 50.5

Nearly all the components that make up the Index were up from March and from last April.

The Company Index, reflecting survey respondents' assessments of conditions for their own operations, rose 2.5 points in April to 56.1.  The Sales Index added 1.6 to 56.3, and the Employment Index was up 4.7 at 54.8.

Thirty-two percent of employers responding to the survey expect to add personnel in the next six months, while only 11 percent foresee staff reductions – much more positive than the 26 percent-18 percent split reported for the previous six months, which was itself an improvement from past surveys.

"The employment results are striking," noted BEA member Michael A. Tyler, Chief Investment Officer at Eastern Bank Wealth Management.

"They may mark a shift from a post-recession to an expansion mindset, as employers become more open to adding staff."

Confidence was lower in the manufacturing sector (51.9, +1.5) than among other employers (54.6, +2.5), and lower outside Greater Boston (50.0, -5.5) than within the metropolitan area (54.3, +3.3). Smaller employers were much more negative than larger ones.

"These differences fit into the big picture of how our economy is changing," Tyler pointed out. "Centers of innovation, like the Boston area, and innovative companies are thriving; we see predominantly positive responses from eastern Massachusetts manufacturers as well as service providers.  More traditional industries, like many in central and western Massachusetts, have little ability to raise prices as costs increase, and face the disruption and consolidation of supply chains in which the occupy intermediary positions."

Topics: Employers, AIM Business Confidence Index, Massachusetts economy

Employers Maintain 'Show Me' Attitude Toward Economy

Posted by Andre Mayer on Apr 1, 2014 9:55:00 AM

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."

Topics: Small Business, AIM Business Confidence Index, Massachusetts economy

Maintain Local Property Tax Exemption: File by April 1 Deadline

Posted by Brad MacDougall on Mar 19, 2014 4:08:00 PM

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.

Topics: A.I.M. Mutual Insurance Company, AIM Employer Issues Survey, Financial Services, Associated Industries of Massachusetts, AIM Business Confidence Index, Massachusetts economy, Employment Law, Taxes, John Regan, Annual Certification of Entity Tax Status, Certification of Entity Tax Status, DOR, Department of Revenue, DOR List of Corporations

Optimism Gap Separates Large, Small Companies in Massachusetts

Posted by Andre Mayer on Mar 4, 2014 9:45:00 AM

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." 

Topics: AIM Business Confidence Index, Massachusetts economy, Economy

Massachusetts Economy Continues 'Prolonged Convalescence'

Posted by Andre Mayer on Feb 4, 2014 9:34:00 AM

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.

Topics: AIM Business Confidence Index, Massachusetts economy, Economy, Business Costs

Do Employers Believe in the Recovery?

Posted by Andre Mayer on Jan 7, 2014 9:03:00 AM

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.

Topics: AIM Business Confidence Index, Massachusetts economy, Massachusetts employers, Economy

Economic Reports Provide Good Cheer - Sort Of

Posted by Christopher Geehern on Dec 6, 2013 11:30:00 AM

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.

Topics: AIM Business Confidence Index, Massachusetts economy, Economy

Political Uncertainty Undermines Business Confidence

Posted by Andre Mayer on Dec 3, 2013 9:08:00 AM

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."

Topics: AIM Business Confidence Index, Economy, Unemployment

Subscribe to our blog

Browse by Tag