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