Economy Whipsaws Employer Confidence in Massachusetts

Posted by Andre Mayer on Oct 2, 2012 9:24:00 AM

A changeable economy continues to whipsaw the confidence of Massachusetts employers.

Business ConfidenceThe Associated Industries of Massachusetts Business Confidence Index lost 3.9 points in September to 51.3, cutting short a two-month recovery from a sharp drop of 8.4 points in June.  Business confidence remained stronger than it was in September 2011, but has dropped a full point and a half between January and September of this year.

Analysts said the September drop reflected employer concerns about the prospects of their companies amid slowing economic activity.

“Employers continue to confront a great deal of uncertainty about the near-term economic future, with the elections and the ‘fiscal cliff’ of pending federal budget cuts and tax increases now probably more immediate concerns that the threat of a Eurozone financial meltdown,” said Raymond G. Torto, Global Chief Economist at CB Richard Ellis Group, Inc., the chair of AIM’s Board of Economic Advisors (BEA).

“At the same time, many are feeling the effects of current weakening in the economy, with slower growth nationally and here in Massachusetts, and outright recession in key export markets. Expectations of recession in the U.S. do not predominate, however.”

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.

The drop in business confidence was driven by eroding assessments by employers of their own hiring plans, which plummeted 5.9 points from 56.2 to 50.3, and overall employer confidence in their company prospects, which declined 5.8 points. The current index of existing business conditions was off 4.0 points while the future index of expected conditions six months from now fell 3.8 points.

“Both a slowing economy and looming uncertainty discourage hiring,” said Sara L. Johnson, Senior Research Director, Global Economics at IHS Global Insight, Inc.

“The great majority of survey respondents (73 percent) plan to hold to current staffing levels in the six months ahead, with only 15 percent expecting to add people and 12 percent foreseeing reductions.”

Employers are also reflecting concern that the economic performance gap between Massachusetts and the rest of the nation is shrinking. The U.S. Index of business conditions prevailing nationally gained a point in September to 45.0, while the Massachusetts Index of conditions within the Commonwealth fell 3.3 to 50.1.

“These are telling results,” said Alan Clayton-Matthews, professor at the School of Public Policy and Urban Affairs at Northeastern University.

“Massachusetts has out-performed the nation economically through much of this business cycle, but the current slowdown is affecting our industries disproportionately, bringing us back to the pack. Over the past year the Massachusetts Index has gained 3.6 points, while the U.S. Index is up 10.0.”

Richard C. Lord, AIM’s President and CEO, said that employers are now concerned about their ability to remain competitive through an economic slowdown at a time when they may not have fully recovered from the effects of the recession.

“There is a lot of debate about what the ‘new normal’ will look like, about how much growth we can expect,” Lord said, “but everyone agrees that its business climate will be exceedingly competitive, on a global scale. Massachusetts has many economic strengths – and every one of them is under pressure from competitors not just in other states, but from around the world. That understanding must be the foundation of state policy going forward.”

Topics: Business Center, AIM Business Confidence Index, Issues, Massachusetts economy

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