Employer Confidence Surges

Posted by Christopher Geehern on Dec 6, 2016 9:18:57 AM

Employer confidence in Massachusetts surged during November amid a post-election economic rally that saw financial markets rise to record levels and the state unemployment rate drop to 3.3 percent.

BCI.November.2016.jpgThe Associated Industries of Massachusetts Business Confidence Index (BCI) rose 1.9 points to 58.1 last month, 1.2 points higher than its level in November 2015. The third consecutive monthly increase in employer sentiment reflected across-the-board bullishness about the state and federal economies, along with a strong recovery of confidence among Massachusetts manufacturers.

U.S. financial markets rose three percent to record highs in the weeks following the unexpected election of Donald J. Trump as president. In Massachusetts, meanwhile, the news was even better as the jobless rate fell to its lowest level since April 2001.

“Employers and investors alike put aside their initial concerns about a Trump presidency and decided that the president-elect would prioritize conventional economic growth measures such as infrastructure investment and tax cuts,” said Raymond G. Torto, Chair of AIM's Board of Economic Advisors (BEA) and Lecturer, Harvard Graduate School of Design.

“How long will that confidence last? It may depend upon President Trump’s commitment to following through on issues that employers are less likely to support, such as setting aside the Trans Pacific Partnership trade agreement and dismantling federal health-care reform.”

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.

All of the sub-indices based on selected questions or categories of employer were up in November.
The Massachusetts Index, assessing business conditions within the commonwealth, gained 1.9 points to 59.8, leaving it a healthy 1.5 points ahead of the same time last year. The U.S. Index of national business conditions rose 2.8 points to move into optimistic territory for the first time since July.

Employers have been more optimistic about the Massachusetts economy than about the national economy for 79 consecutive months.

The Current Index, which assesses overall business conditions at the time of the survey, increased 0.9 points to 56.9 while the Future Index, measuring expectations for six months out, surged 2.9 points to 59.2. The future outlook was 1.2 points better than a year ago and higher than at any point since March 2015.

The sub-indices bearing on survey respondents’ own operations also strengthened considerably.

The Company Index, reflecting overall business conditions, rose 1.6 points to 59.5, while the Employment Index moved up 2 points to 57.4 and the Sales Index gained 2.7 points.

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.

“The most encouraging element of the November BCI is the degree to which employers are translating their overall optimism about the economy into optimism about their own plans for sales growth and hiring,” said Alan Clayton-Matthews, Professor of Public Policy and Urban Affairs at Northeastern University and a BEA member.

He noted that manufacturing companies are driving much of the overall rise in business confidence after several years of concern about weakness in overseas export markets in Europe and Asia.

“Optimistic manufacturers are good for the Massachusetts economy,” Clayton-Matthews said.

The BCI Manufacturing Index jumped 2.6 points during the month and 4.1 points for the year. Still, the overall Business Confidence Index among non-manufacturers was 60.1 compared to 56.1 for manufacturing companies.
Companies in the eastern part of the Massachusetts were slightly more optimistic at 59.2 than those in the western part of the state at 57.4.

AIM’s President and CEO Richard C. Lord, also a BEA member, said the surprise election of a president with no record in public office upon which to make judgments will make 2017 an uncertain time for Massachusetts employers and the state economy.

“Will President Trump and the Republican Congress succeed in reducing corporate taxes? Will they keep their promise to simplify the regulatory structure? What will the potential scrapping of health-care reform mean to Massachusetts? And will the new president follow through on his intent to end or renegotiate trade agreements important to employers? That’s a lot of uncertainty,” Lord said.

“The good news is that Massachusetts remains one of the strongest state economies in the nation thanks to years of sound fiscal management and attention by elected officials to the needs of employers. We have every expectation that Governor Baker and the Legislature will follow the same course in 2017-2018.”

Topics: AIM Business Confidence Index, Massachusetts economy, Donald Trump

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