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Employer Confidence Falls in May

Posted by Christopher Geehern on Jun 4, 2019, 8:30:00 AM

Employer confidence weakened in Massachusetts during May amid renewed trade tensions and concerns among companies about increased operating costs from paid family leave and other government mandates.

BCI.May.2019The outlook among business leaders has moved in a narrow, overall optimistic, range for much of 2019.

The Associated Industries of Massachusetts Business Confidence Index (BCI) lost 3.2 points last month to 57.1, its lowest level since October 2016. The Index has declined 9.5 points since May 2018.

All of the constituent indicators that make up the BCI weakened during May with the largest drop coming in employer views of conditions six months from now.

The erosion of confidence during the past 12 months has been driven largely by caution about the national economy and concern among manufacturing companies.

“The Business Confidence Index continues to reflect the Goldilocks economy in which we find ourselves – US GDP growth is expected to remain at a modest level of 2 to 3 percent and there is not much inflation or deflation. There are both encouraging signs and red flags,” said Raymond G. Torto, Chair of AIM's Board of Economic Advisors (BEA) and Lecturer, Harvard Graduate School of Design.

Several employers participating in the survey said regulatory costs have become a significant concern.

“The cost to operate has increased dramatically - higher wages, benefit costs, supply costs and cost of compliance with all the new regulations coming out of State House,” one employer wrote.

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

The constituent indicators showed a broad-based retrenchment during May.

The Massachusetts Index assessing business conditions within the commonwealth fell 2.3 points to 60.9, while the US Index shed 3.3 points to 55.0. The Massachusetts reading has declined 9.1 points during the past 12 months and the US reading has dropped 14.3 points during the same period.

The Future Index, measuring expectations for six months out, tumbled 4.5 points to 56.0. The Current Index, which assesses overall business conditions at the time of the survey, lost 1.8 points to 58.2, 8.4 points lower than a year ago.

The Employment Index declined 1.2 points for the month and 5.1 percent for 12 months. Analysts say employers continue to struggle to find qualified workers in a state economy with a 2.9 percent jobless rate.

Non-manufacturers (60.0) were more confident than manufacturers (54.7). Small companies (58.4) were more bullish than large (55.0) or medium-sized companies (57.6), a reversal of the usual pattern. Companies in Eastern Massachusetts (59.3) continued to be far more optimistic than those in the west (54.0).

Elmore Alexander, Retired Dean of the Ricciardi College of Business at Bridgewater State University and a BEA member, said Massachusetts employers are reflecting general concerns about tepid national economic growth, renewed geopolitical tensions and slowing corporate spending.

“Few see an imminent recession, but most experts believe US economic growth will slow from 3 percent last year to 2.1 percent this year to 1.9 percent in 2020,” Alexander said.

Rising Costs

AIM President and CEO John R. Regan, also BEA member, said the national economic uncertainty comes at a time when Massachusetts employers are struggling with a series of expensive new employment law mandates such as the state’s $1 billion paid family and medical leave program.

“AIM has joined Raise Up Massachusetts and other groups in asking the Baker Administration to delay the scheduled July 1 start of paid leave by three months to provide employers time to consider how much of the cost they will share with workers and whether they wish to opt out of the state system. The delay is necessary to ensure a smooth rollout of this new entitlement,” Regan said.

Regan joined the BEA after being named President and Chief Executive Officer of AIM.

Topics: International Trade, AIM Business Confidence Index, Massachusetts economy

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