Employer Confidence Wanes, But Companies Do Not Expect Freefall

Posted by Andre Mayer on Oct 4, 2011 8:59:00 AM

The economic wagon may be running downhill, but Massachusetts employers apparently don’t believe that the wheels are falling off.

Massachusetts Business ConfidenceConfidence among Bay State employers waned for the fourth time in five months during September as the Associated Industries of Massachusetts (AIM) Business Confidence Index dropped eight-tenths of a point to 48.4 on a scale of 100. Current confidence levels remain just below the 50-point level that separates a positive from negative outlook.

At the same time, the 140 employers who participated in the monthly survey believe that conditions are likely to remain about the same during the next six months instead of deteriorating.

“Massachusetts employers are responding to flagging growth domestically and globally, and a realization that recovery will be weak and prolonged – at best,” said Raymond G. Torto, Global Chief Economist at CB Richard Ellis Group, Inc., the chair of AIM’s Board of Economic Advisors (BEA).

“Political deadlock on both sides of the Atlantic contributes to the erosion of confidence and to concerns that we face a real risk of slipping back into recession.”

The September confidence reading was up eight-tenths of a point from a year earlier. Analysts do not believe, however, that confidence numbers will track the rally in business confidence that took place in the fourth quarter of 2010.

Employers remain far more bullish about the Massachusetts economy than the national landscape. The Massachusetts component of the Business Confidence Index rose 2.4 points during September to 46.5, while confidence in the U.S. economy fell 2.2 points to 35.0.

“This is the lowest reading for the U.S. Index since August 2009, highlighting the national and international forces that dominate our economic situation,” said Fred Breimyer, Regional Economist for the Federal Deposit Insurance Corporation and a BEA member.

“Massachusetts employers rate current in-state conditions negatively (17 percent good, 30 percent bad), but still much better than national conditions (3 percent good, 57 percent bad).”

Economists caution that continued economic deterioration in Europe, a key center for foreign trade for Massachusetts companies, poses a significant threat to the Bay State economy.

Employer confidence in current economy is almost identical to their expectation of what conditions will be six months down the road. Breimyer said that immediate business conditions are marginally better than they were a year ago, but expectations for near-term recovery have shown no improvement.

The Company Index, which measures survey respondents’ overall confidence in the situations of their own operations, fell 1.4 points in September to 53.5. The two other company-specific sub-indices also declined, the Sales Index by nine-tenths to 52.5 and the Employment Index by 3.9 to 50.4.

Richard C. Lord, AIM’s President and CEO, a BEA member, said the confidence numbers underscore the need effective national – and international – leadership in economic affairs.

“We can be proud that the Massachusetts Index has been above the U.S. Index in 43 of the past 44 months, but clearly business conditions here in the Commonwealth are not so good that our economy can prosper without national and global growth,” he said.
Lord takes some heart from recent developments in Washington.

“The Federal Reserve’s comments on dangers facing the economy, though they shocked the markets in the short run, were a needed wakeup call to policymakers here and abroad . . . President Obama is working to put the focus on job creation, and our own Senator Scott Brown, among the Republicans, has shown willingness to engage constructively with his proposals.”

AIM’s Business Confidence Index has been issued monthly since July 1991 under the oversight of the Board of Economic Advisors. Its historical high was 68.5, attained in 1997 and 1998; its all-time low was 33.3 in February 2009.

Topics: AIM Business Confidence Index, Massachusetts economy, Massachusetts employers

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