Employer Confidence Falls Again in July

Posted by Christopher Geehern on Aug 2, 2016 9:19:26 AM

A resurgent US stock market, better-than-expected job growth and growing labor-force participation failed to make believers of Massachusetts employers during July as business confidence fell for a second consecutive month.

BCI.July.2016.jpgThe Associated Industries of Massachusetts Business Confidence Index (BCI) declined one point to 55.1 last month, leaving it more than four full points lower than in July 2015. The confidence reading remained above the 50 mark that denotes an overall positive economic outlook, but optimism dimmed across the board on employment, the Massachusetts economy and employers’ outlook on their own companies.

The BCI has now declined in three of the past four months.

Economists suggest that employers may be caught between the expectation of an expanding US economy and concern about anemic growth and instability overseas. It’s a paradox that has resulted in the stock and bond markets, which usually move in opposite directions, rising in tandem this year.

“We see a familiar pattern in what is now the fourth longest economic expansion since World War II - employers remain optimistic about the state of the economy but it is an optimism marked by fits and starts and reactions to all sorts of political and economic events,” said Raymond G. Torto, Chair of AIM's Board of Economic Advisors (BEA) and Lecturer, Harvard Graduate School of Design.

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.

The index has remained above 50 since October 2013.

Constituent Indicators Fall  

Most of the sub-indices based on selected questions or categories of employer declined during July.

The Massachusetts Index, assessing business conditions within the commonwealth, dropped 1.3 points during July and 0.3 points over the year to 57.2. The U.S. Index of national business conditions, in contrast, bucked the downward trend of the past year (in which it dropped 3.0 points) by gaining 1.5 points. Even so, employers have been more optimistic about the Massachusetts economy than about the national economy for 75 consecutive months.

The Current Index, which assesses overall business conditions at the time of the survey, fell 0.2 points to 55.3 while the Future Index, measuring expectations for six months out, slid 1.8 points to 54.8.

“July marked the first time since September 2015 that employers were more positive about current conditions than those six months from now. It’s something to watch, since confidence drives employer decisions on hiring and investment moving forward,” said Elliot Winer, Chief Economist, Northeast Economic Analysis Group LLC.

“It’s also worth noting that employer confidence in their own companies has declined by 5.8 points, albeit from a high level, during the past 12 months.”

Operational Views Dim

Indeed, the three sub-indices bearing on survey respondents’ own operations all weakened.

The Company Index, reflecting overall business conditions, fell 1.8 points to 55.9, while the Sales Index lost 1.4 points to 55.6 and the Employment Index dropped 2.0 points to 52.5.

The AIM survey found that nearly 39 percent of respondents reported adding staff during the past six months while 19 percent reduced employment. Expectations for the next six months were stable – 37 percent hiring and only 10 percent downsizing.  

“A tightening labor market is finally beginning to put upward pressure on wage growth as employers compete for skilled workers,” said Professor Michael D. Goodman, Executive Director of the Public Policy Center (PPC) at UMass Dartmouth.

“Wages rose 2.6 percent for the 12 months ended in June, the fastest annual growth rate since 2009. While this is welcome news for the state’s working families, whose wages have been stagnant for an extended period, it represents a challenge for those employers with limited pricing power who can expect it to be increasingly difficult and expensive to obtain the labor they need to support expected growth in coming months. ”

 Confidence levels in July were higher in Greater Boston (56.8) than in the rest of the commonwealth (52.2).  Non-manufacturing companies enjoyed a significantly brighter outlook at 58.0 than manufacturing employers, who posted an overall confidence level of 52.6. 

Beacon Hill and Business

AIM’s President and CEO Richard C. Lord, a BEA member, said employers should take encouragement from the moderate approach to business issues taken by state lawmakers during the two-year legislative session that ended Sunday night. Beacon Hill balanced a difficult budget with no tax increases, passed economic development and energy legislation, and developed a consensus pay-equity measure that balances the needs of employers and workers.

“The Legislature and the Baker Administration again showed an understanding of the factors that contribute to business growth and job creation,” Lord said.

“We give particular credit to House Speaker Robert DeLeo, who forged meaningful compromises on pay-equity, non-compete agreements and other key issues.”

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

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