Fiscal Agreement, Slowing Economy Tug on Business Confidence

Posted by Andre Mayer on Feb 5, 2013 9:21:00 AM

Massachusetts employers began 2013 torn between optimism at the resolution of some fiscal issues in Washington DC and concern over both a downshifting economy and the prospect of budget reductions affecting key industries.

BCI.January.2013The Associated Industries of Massachusetts Business Confidence Index rose 2.6 points in January to 50.4 – just above neutral on its 100-point scale. It marked the third consecutive brightening of employer outlooks, but still left confidence readings more than two points lower than in January 2011.

"January 2013 is better than late 2012, but not as good as a year ago," said Raymond G. Torto, Global Chief Economist at CB Richard Ellis Group, Inc., the chair of AIM’s Board of Economic Advisors (BEA).

"The agreement on taxes at the beginning of the month resolved a large issue facing many businesses, and we have since seen further signs that Washington may be moving past the deadlock of the last two years, not just on fiscal matters but also on, for example, immigration."

Torto said that the unexpected contraction of the U.S. economy during the fourth quarter and the prospect of spending cuts in areas such as defense, health care and higher education continues to make employers cautious.

How cautious? The January Index found that while employer assessments of future conditions jumped 4.1 points to 51.9 and assessments of their own companies rose 3.2 points to 54.5, the Employment Index rose a more modest 1.7 points to 52.3

"The signs on employment are a bit stronger, but do not point to very much job creation in the immediate future," said BEA member Katherine A. Kiel, Professor of Economics at the College of the Holy Cross.

Employers remain more confident about conditions in Massachusetts than in the nation as a whole, but the gap is narrowing. The U.S. Index of business conditions prevailing nationally added 3.4 points in January to 41.6, and the Massachusetts Index of conditions within the Commonwealth edged up 0.4 to 47.2.

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: Business Center, AIM Business Confidence Index

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