Confidence Remains Steady Despite Political Uncertainty

Posted by Andre Mayer on Nov 3, 2015 9:38:37 AM

The Associated Industries of Massachusetts Business Confidence edged off three-tenths of a point in October to 55.6 as employers across the commonwealth balanced weaker current conditions against expectations of improvement in the first half of 2016.

BCI.October.2015“This was the Index’s third consecutive monthly decline, but the big story here is what didn’t happen.   What didn’t happen is a sharp drop in business confidence due to political deadlock in Washington,” said Raymond G. Torto, Chair of AIM's Board of Economic Advisors (BEA) and Lecturer, Harvard Graduate School of Design.

“Nearly all our survey responses were in before the latest federal debt ceiling ‘crisis’ and the House speakership election were resolved, but these threats did not have the same impact as in the past. In the October 2013 debt ceiling standoff, for example, the Index fell 5.8 points to 46.7.”

Torto noted that U.S. economic growth slowed to 1.5 percent in the third quarter and the Massachusetts rate to 2.0 percent, both well down from the second quarter.

The AIM Index, based on a survey of 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.

Current Conditions Weaker, but Future Brighter   

The sub-indices based on selected questions or categories of respondent were mixed in October, with most moving only fractionally from September, while most were up year-over-year.

The Massachusetts Index, assessing business conditions within the commonwealth, lost six-tenths to 54.1, but was up eight-tenths from last October. The U.S. Index of national business conditions, at 50.9, was up three-tenths on both the month and the year.

“The fact that the national indicator actually rose in October is further evidence that the debt ceiling deadlock had little or no effect on confidence,” said Alan Clayton-Matthews, professor at the School of Public Policy and Urban Affairs at Northeastern University, a BEA member.

“Meanwhile, Massachusetts continues to out-perform the nation as a whole economically, which is reflected in persistently higher readings for the Massachusetts Index compared to the U.S. Index.  Our local economy is of course affected by national and global conditions, but its underlying strengths are keeping us competitive through ups and downs.” 

The Current Index, which assesses overall business conditions at the time of the survey, was off 1.8 points on the month at 54.9, while the Future Index, measuring expectations for six months out, added 1.2 to 56.2.

“Even as current conditions are seen to be weakening, with five declines in six months, employers expect modest improvement over the coming period,” Clayton-Matthews pointed out. “Again, it appears that neither negative current trends nor domestic and global uncertainties are undermining the foundations of business confidence.”  

Employment Poised for Upswing?

The three sub-indices bearing on survey respondents’ own operations were mixed but basically steady in October.

The Company Index, reflecting overall business conditions, was off a half-point at 57.6, the Sales Index edged up a half-point to 58.2; and the Employment Index also added a half to 55.2.

“Like our Current and Future indices, the employment responses reveal optimism,” said BEA member Fred Breimyer, regional economist at the FDIC. “Whereas 27 percent of respondents reported adding staff in the previous six months while 18 percent reduced employment, expectations for the next six months were much stronger – 32 percent hiring and only 7 percent downsizing.”


Topics: AIM Business Confidence Index, Massachusetts economy, Jobs

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