Confidence among Massachusetts employers rose to a 10-month high during May as the state approached full employment despite persistent mixed signals from the national economy.
The Associated Industries of Massachusetts Business Confidence Index rose 1.5 points during May to 57.7, the highest level since July 2015. The reading was slightly higher than the 57.3 level posted a year ago and comfortably above the 50 mark that denotes an overall positive economic outlook.
The brightening outlook came amid growing evidence that the US economy is regaining its footing after a 0.8 percent growth rate during the first quarter. Recent reports on retail sales, housing starts and industrial production paint an upbeat picture of the economy in the second quarter.
At the same time, the government reported on Friday that the US economy created just 38,000 jobs during May, the slowest pace since 2010.
“Massachusetts employers appear to have shaken off the uncertainty of the fall and winter and are now feeling optimistic about the remainder of 2016,” said Raymond G. Torto, Chair of AIM's Board of Economic Advisors (BEA) and Lecturer, Harvard Graduate School of Design.
“The most encouraging news is that every constituent measure contained in the Business Confidence Index rose during May and most were higher than they were a year ago.”
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.
The Massachusetts Index, assessing business conditions within the commonwealth, surged 2 points to 59.3 in April, up 3.4 points from the year earlier. The U.S. Index of national business conditions rose 1.3 points to 51.8. Employers have been more optimistic about the Massachusetts economy than about the national economy for 73 consecutive months.
The Current Index, which assesses overall business conditions at the time of the survey, gained 2.2 points to 57.4 while the Future Index, measuring expectations for six months out, increased 0.8 points to 58.1
“Confidence among Massachusetts employers appears to be rising in lockstep with consumer confidence, which Mass Insight reported last week hit a 10-year high during the second quarter,” said Katherine A. Kiel, Ph.D., Professor of Economics, College of the Holy Cross, and a BEA member.
“The Massachusetts economy grew faster than the nation during the first quarter of 2016 and is now approaching full employment with a jobless rate of 4.2 percent – no surprise to employers who continue to struggle with a shortage of skilled workers.”
The three sub-indices bearing on survey respondents’ own operations all advanced.
The Company Index, reflecting overall business conditions, rose 1.4 points to 59.2, while the Sales Index increased 1.9 points to 59.8 and the Employment Index jumped 0.9 points to 55.1.
“Massachusetts continues to enjoy healthy job growth because of the commonwealth’s favorable industry mix - especially the health, education, advanced manufacturing, and high-tech segments of professional and business services,” said Alan Clayton-Matthews, Professor of Public Policy and Urban Affairs at Northeastern University.
The 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.
Confidence levels in February were higher in Greater Boston (59.5) than in the rest of the commonwealth (56.1). Non-manufacturing companies enjoyed a significantly brighter outlook at 62.7 than manufacturing employers, who posted an overall confidence level of 54.3.
AIM’s President and CEO Richard C. Lord, a BEA member, said Beacon Hill lawmakers will have a profound influence on the economic fortunes of Massachusetts as the 2015-2016 legislative session draws to a close.
“The Legislature and the Baker administration continue to exercise the type of predictable fiscal discipline that employers value as they look to grow and expand,” Lord said.
“At the same time, the end of the legislative session includes bills on energy, wage equity and paid leave that are cause for concern among employers.”