Business confidence broke a three-month slide during September as Massachusetts employers, particularly in the service sector, discovered newfound optimism in their own business operations.
The Associated Industries of Massachusetts Business Confidence Index (BCI) rose 1.8 points to 55.9 last month, the same level recorded 12 months earlier. The increase was driven by a 3.1-point surge in the Company Index, which reflects overall business conditions at employer companies, and similar jumps in readings based on employment and sales.
The uptick came as the Federal Reserve continued to suggest that the economy is strong enough to raise interest rates before the end of the year.
“Employers remain ambivalent about both the U.S. and national economies ahead of the presidential election, but companies clearly have regained a sense of buoyancy about their own futures,” said Michael A. Tyler, CFA, Chief Investment Officer, Eastern Bank Wealth Management and a member of AIM's Board of Economic Advisors (BEA).
“Large increases in the sales and employment indexes bode well for a Massachusetts economy that already enjoys a 3.9 percent unemployment rate.”
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 Mixed
The sub-indices based on selected questions or categories of employer were mixed during September.
The Massachusetts Index, assessing business conditions within the commonwealth, shed 0.3 points during the month, but gained 2.3 points over the year to 57.0. The U.S. Index of national business conditions remained slightly pessimistic, dropping 0.4 points to 49.2, 1.4 points lower than its level of a year ago.
Employers have been more optimistic about the Massachusetts economy than about the national economy for 77 consecutive months.
The Current Index, which assesses overall business conditions at the time of the survey, increased 2.3 points to 55.7 while the Future Index, measuring expectations for six months out, rose 1.1 points to 56.0. The future view is a point higher than it was in September 2015.
Operational Views Strengthen
The 3.1-point increase in the Company Index reflected a surge of 3.8 points in the Sales Index to 58.1 and a 1.9-point jump in the Employment Index to 54.5. The AIM survey found that nearly 39 percent of respondents reported adding staff during the past six months while 19 percent reduced employment. Expectations for the next six months were stable – 38 percent hiring and only 10 percent downsizing.
Non-manufacturing companies maintain a significantly brighter outlook than manufacturers. The overall Business Confidence Index among non-manufacturers was 61.1 compared to 50.9 for manufacturing companies.
“The uptick in employer assessments of their own prospects comes as welcome news following three consecutive months of declines. At the same time, manufacturers continue to struggle with economic weakness in key export markets,” said Paul Bolger, President, Massachusetts Capital Resource Company and a BEA member.
The Economy and the Election
AIM’s President and CEO Richard C. Lord, also a BEA member, said the 2016 presidential election has become a referendum on the degree to which the economic recovery is benefitting middle-income Americans.
“Peter Canellos, Executive Editor of Politico, told the AIM Executive Forum on September 16 that the legacy of the 2016 campaign will be an ongoing debate about the economic future of blue-collar, middle-class workers who have not felt the benefits of the recovery. It is incumbent upon all of us to create an economic that encourages the development of jobs across all sectors to train people effectively for those jobs,” Lord said.