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

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