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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

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