Business Confidence Tumbles during August

Posted by Christopher Geehern on Sep 10, 2019 8:00:00 AM

Business confidence continued to seesaw during August as employers warily eyed a possible economic slowdown and the escalating trade war between the United States and China.

BCI.August.2019The Associated Industries of Massachusetts Business Confidence Index (BCI) fell 3.3 points to 58.7 last month after surging 4.4 points during July. The Index has lost 4.5 points since August 2018 but remains within optimistic territory.

The August decline was driven by growing concern about the US economy and the outlook among manufacturers- both elements driven by trade concerns.

Analysts cautioned against reading too much into the month-to-month gyrations of the Business Confidence Index but noted that every measure of confidence now sits below its level of a year ago.

“The imposition of 15 percent tariffs on $112 billion worth of Chinese goods on September 1 underscores the uncertainty facing employers, particularly manufacturers, who do business in overseas markets,” said Raymond G. Torto, Chair of AIM's Board of Economic Advisors (BEA) and Lecturer at the Harvard Graduate School of Design.

“At the same time, employers are beginning to see evidence from both customers and suppliers of a slowdown in the US economy. That caution is reflected in the 7.4-point confidence drop in the national outlook.”

The nation’s gross domestic product — the broadest gauge of economic health — grew at a moderate 2.0 percent annual rate in the April-June quarter, down from a 3.1 percent growth rate in the first quarter.

The AIM Index, based on a survey of more than 100 Massachusetts employers, has appeared monthly since July 1991. It is calculated on a 100-point scale, with 50 as neutral; a reading above 50 is positive, while below 50 is negative. The Index reached its historic high of 68.5 on two occasions in 1997-98, and its all-time low of 33.3 in February 2009.

The Index has remained above 50 since October 2013.

Constituent Indicators

The constituent indicators that make up the AIM BCI all decreased during August.

The Massachusetts Index assessing business conditions within the commonwealth fell 4.3 points to 63.9 while the US Index dropped to 55.2. The Massachusetts reading has decreased 0.8 points and the US reading 9.5 points during the past 12 months.

The Future Index, measuring expectations for six months out, declined 3.9 points to 56.9, leaving it 3.3 points lower than a year ago. The Current Index, which assesses overall business conditions at the time of the survey, lost 2.7 points to 60.5, 5.6 points lower than its reading of August 2018.

The Employment Index slipped 1.5 points for the month and 3.8 points for the year even as the state unemployment rate fell to 2.9 percent. Employers continue to struggle to find qualified workers in a full-employment state economy.

Non-manufacturers (60.3) were more confident than manufacturers (57.1). Small companies (61.5) remained more confident than large companies (58.7) or medium-sized companies (56.3). Companies in Eastern Massachusetts (60.7) continue to be more optimistic than those in the west (56.0).

Katherine A. Kiel, Professor of Economics at the College of the Holy Cross, and a BEA member, said business confidence reflects the same volatility that has shaken global financial markets in recent months.

“Economic growth in Massachusetts slowed from 2.7 percent during the first quarter to 1.4 percent in the second.

Employers remain optimistic overall but see growing downside risks ranging from demographic constraints on the labor force to international uncertainty caused by factors such as tariffs and Brexit,” Kiel said.

State Policy Gains

AIM President and CEO John R. Regan, also BEA member, said employers will be watching closely this fall as the Massachusetts Legislature debates an education funding bill that could begin to address the persistent shortage of skilled workers in the economy.

“The 3,500 member companies of Associated Industries of Massachusetts (AIM) who depend upon the public schools to prepare the workforce of the future support education reform that contains specific and measurable performance objectives. Anyone who owns or manages a business tracks return on investment and the investment we make in our public schools and students should be no different,” Regan said.

Topics: AIM Business Confidence Index, Massachusetts employers, Economy

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