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Business Confidence Rebounds; No Net Change in 12 Months

Posted by Andre Mayer on Aug 6, 2013 9:37:00 AM

The confidence level of Massachusetts employers rebounded during July leaving it … right where it was a year ago.

BCI.July.2013The AIM Business Confidence Index rose 3.6 points in July to 52.5, recouping June’s loss and moving back into positive territory above 50. The increase eased fears of a fourth consecutive summer confidence swoon, but it also left employer sentiment almost exactly equal to the 52.2 level it reached in July 2012.

"AIM's Business Confidence Index is entering its twenty-third year about where it began its twenty-second," said Richard C. Lord, the organization’s President and CEO, a BEA member.

"The biggest difference between the results of our July 2013 survey and those of a year before is a significant improvement in the assessment of national conditions, as the U.S. Index is up from 41.9 to 46.0. This gain in part reflects a rebuilding economy, but also reflects the fact that the Senate's movement to approve some key presidential appointment offers some hope of eventual agreement on fiscal matters as well."

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. 

Analysts believe that persistent uncertainty is wearing down employer attitudes toward the economy.

"Employers' fear of uncertainty remains greater than it was before the recession – and uncertainty is particularly damaging to confidence because it is unpredictable and generally unmanageable,” said Raymond G. Torto, Chairman at CB Richard Ellis Group, Inc., and chair of the AIM Board of Economic Advisors (BEA).

“The persistent pattern of halting growth and policy frustration, though now familiar, continues to weigh down on business confidence."

The economic uncertainty grew last week as the government announced that the U.S. economy expanded at a 1.7 percent annual rate in the second quarter of 2013, while the growth rate of the Massachusetts economy for the quarter fell to 0.8 percent. Although Massachusetts has recouped the jobs lost in the recession, its unemployment rate is still high and now rising, while national unemployment, even higher, continues to decline.

Business confidence has drifted in a narrow range for most of 2013, staring the year at 50.4 and dropping to 48.9 in June before bouncing back last month.

All of the component elements of the Business Confidence Index rose during July. The Current Index, tracking employers’ assessment of existing business conditions, and the Future Index, measuring expectations for the next six months, each added 3.6 points, to 51.9 and 53.1 respectively.

 “Both of these indicators have moved back above 50, and the Future Index is ahead of the Current Index, so the results are positive and point to improvement,” said Michael A. Tyler, Chief Investment Officer, Eastern Bank Wealth Management, a BEA member. “The numbers are, however, just about the same as a year ago."

The Company Index, which measures survey respondents’ overall confidence in the situations of their own operations, added 4.6 points in July to 55.7. The Sales Index gained 5.5 to 55.5, while the Employment Index added 2.5 to 53.2.

"One of the most striking aspects of the recent history of the Index, for those of us who have followed it from its inception, is the fact that throughout this cycle of recession and recovery the Massachusetts Index has run ahead of the U.S. Index, in sharp contrast to past cycles," Lord said.

"Last week's second quarter growth estimates, showing that Massachusetts fared significantly worse than the nation over that period, remind us that our success in this cycle is partly luck – we suffered less than most states from, for example, the meltdown of the automotive and construction industries, and are now benefiting less from their resurgence.

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

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