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Resilient Economy Boosts Business Confidence

Posted by Christopher Geehern on Nov 12, 2019 8:00:00 AM

Business confidence strengthened in Massachusetts last month amid signs that the state and national economies are more resilient than many experts predicted.

BCI.October.2019The Associated Industries of Massachusetts Business Confidence Index (BCI) rose 2 points to 60.9 last month, leaving it virtually even with its level of a year ago.

The October upswing was led by growing employer optimism in the Massachusetts and national economies, as well as brightening prospects for manufacturers.

The survey results came during a month when US employers added a stronger-than-expected 128,000 jobs. And while the Massachusetts economy contracted slightly during the third quarter, experts say the reversal reflects workforce capacity limits rather than an economic downturn.

“U.S. hiring was unexpectedly resilient in October and prior months saw upward revisions. It appears that consumers will extend the record-long expansion despite trade tensions and weak business investment,” said Raymond G. Torto, Chair of AIM's Board of Economic Advisors (BEA).

The AIM Index, based on a survey of more than 100 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 that make up the Business Confidence Index all moved higher during October.

The Massachusetts Index assessing business conditions within the commonwealth surged 4.5 points to 67.8 while the US Index rose 3.1 points to 59.6. The increase left the Massachusetts reading 3 points higher than a year ago; the US index has dropped by 2 points during the past 12 months.

The Future Index, measuring expectations for six months out, gained 2.2 points to 58.6, virtually even with its reading from October 2018. The Current Index, which assesses overall business conditions at the time of the survey, increased 2.0 points to 63.3, also matching its reading of a year ago.

The Employment Index rose slightly by 0.3 points for the month but remained down 2.5 points for the year, underscoring the capacity issues faced by employers struggling to find qualified workers in a full-employment state economy.

Non-manufacturers (63.4) were more confident than manufacturers (59.0), despite a strong October gain in optimism among industrial companies. Small companies (63.6) were more optimistic than medium-sized companies (60.6) or large companies (59.6). Companies in Eastern Massachusetts (61.2) remained more optimistic than those in the west (60.4).

Paul Bolger, President, Massachusetts Capital Resource Company and a BEA member, said employers appear to have concluded that the slowing economy remains fundamentally strong enough to make a recession unlikely in the near future.

“Companies are also hoping that a preliminary trade agreement between China and the United States will clear up some of the uncertainty that has been causes by tariffs and an escalating trade battle,” Bolger said.

Business Battens the Hatches

AIM President and CEO John R. Regan, also BEA member, said the persistent shortage of skilled workers constraining the Massachusetts economy underscores the need for the Legislature to pass an education funding bill that establishes accountability for school districts to prepare students for both college and the workforce. 

“The job of sustaining Massachusetts’ global leadership in innovation belongs to everyone, and that requires a thoughtful, long-range plan to maintain our competitive advantage, including our education system. The foundation of such a plan is a set of educational standards that ensure our students’ continued achievement via distinct criteria,” Regan said.

“Whether Massachusetts high school graduates choose a college track or enter the workforce directly upon graduation, we must remain vigilant and insist on relevant, high standards to provide all our students with equal access to the economic advantages that follow educational achievement.”

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

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