AIMBlog_Logo_Resized

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

Subscribe to our blog

Posts by popularity

Browse by Tag