Published on Thursday, September 06, 2012
The Associated Industries of Massachusetts Business Confidence Index added three points in August to 55.2, continuing its recuperation from an 8.5-point plunge in June to 48.3. “What we have seen in the past few months encapsulates the overall course of this economic recovery,” said Raymond G. Torto, Global Chief Economist at CB Richard Ellis Group, Inc. and Chair of AIM's Board of Economic Advisors (BEA). “We are beset by persistent uncertainties – the June survey took place at a time of disturbing news from Europe, and of course there are domestic concerns as well – while, at the same time, the recovery is consolidating and prevailing business conditions are generally positive.”
Torto noted that midyear drops in both 2010 and 2011 lasted longer than this year’s single month of decline. “We’re already most of the way back to May’s level,” he said. “The Index is up six points from last August, and 7.5 over two years. For the AIM Index as for the economy, progress since mid-2010 has been slow and bumpy, but the overall trend is upward.”
The AIM Index, which has appeared since July 1991, 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.
Concerns Cloud Views of National Economic Prospects
All of the sub-indices based on selected questions and respondent characteristics rose in August along with the main Index. “The Current Index, assessing overall business conditions at the time of the survey, gained three points in August to 54.9, and is just barely above where it was in May (54.8); the Future Index, measuring expectations for six months ahead, was also up three at 55.5, still well below May’s 58.7,” said Elliot Winer, Chief Economist, Northeast Economic Analysis Group LLC, a BEA member. “Massachusetts employers are on the whole doing reasonably well, and look forward to modestly improved conditions, but they are significantly less optimistic about the near future than they were a few months ago. The six-month horizon now reaches to the so-called ‘fiscal cliff’ when federal budget cuts and tax increases will take effect unless Congress acts to forestall them.”
The Massachusetts Index of conditions within the Commonwealth was up 4.2 points to 53.4, while the U.S. Index of national conditions gained half as much, to 44.0. “The ‘fiscal cliff’ concerns appear to play a part here, as survey respondents are much less sanguine about national economic prospects than they were in the spring,” Winer noted; but, he added, “Massachusetts would hardly escape the impact of cuts in defense and non-defense spending, or of tax increases including the potential expiration of the alternative minimum tax ‘fix.’”
Jobs Numbers Stronger Than in Recent Months
Among the company-related sub-indices, the broad Company Index rose 2.9 points in August to 59.6, the Sales Index added 1.6 to 57.3, and the Employment Index gained 2.3 to 56.2. “The rebound of the Employment Index, in the face of considerable uncertainty and slowing growth, is very encouraging,” said BEA member Michael Goodman, chair of the Department of Public Policy at the University of Massachusetts-Dartmouth. “Respondents are decidedly positive when characterizing their hiring over the past six months – 40% report adding jobs, 14% reducing employment, and looking ahead – 29% expect to add personnel, while 12% foresee reductions. Those figures do suggest slower job creation ahead, but they are nevertheless the best we have seen in more than a year.”
Confidence remained higher among manufacturers (56.9, +3.7) than among other employers (53.8, +2.9). The confidence gap also widened between employers in Greater Boston (57.0, +4.3) and those elsewhere in the state (51.8, +0.2). “The Greater Boston area has fared much better than the rest of the state thus far in this recovery, so it is not surprising that confidence would be higher there, as it has been since April,” Goodman pointed out. “Also, while defense is an important sector statewide, regional differences in the perceived exposure to expected federal cuts to defense contractors and subcontractors may help to explain these regional differences.” Larger employers were more positive than smaller ones on almost all questions.
New Consensus on Business Climate Benefits Massachusetts
Commenting on the August Business Confidence Index results, Richard C. Lord, President and CEO of AIM and a BEA member, drew attention to the sub-indices tracking conditions in the state and the nation. “The Massachusetts Index is well above the U.S. Index (53.4 – 44.0) this month; it has outgained its national counterpart over one, two, three and four years; in fact, it has been higher in 54 of the past 55 months,” he said. “This performance by our state, which contrasts starkly with our poor showing in past recessions and recoveries, owes something to the particular nature of this most recent downturn in terms of the economic sectors that were hit hardest,” Lord went on, “but credit is also due to effective public policy responses to adverse conditions.”
Lord pointed to the recently released AIM 2011-2012 Legislative Scorecard, assessing legislator’s voting records in the past session. “The scores for 2011-12 are higher than those of 2009-2010, and much better than the results in 2007-2008; they are perhaps the best in the ten-year history of our Scorecard,” he said. “They are also quite uniformly positive – there are fewer low scorers than ever before, and there is a considerable overlap in the scores of members from the two parties. Nor were the year’s issues easy ones, Lord noted. “Health care costs and electricity costs, AIM’s two biggest issues in this session, were controversial and complex,” but the Legislature addressed both. “In Massachusetts, we are learning the value of working together to maintain a sound business climate,” he concluded. “That is the lesson Washington should draw from our example.”
The monthly Business Confidence Index, initiated by AIM's Board of Economic Advisors in July 1991, is based on a survey of AIM member-companies across Massachusetts, asking questions about current and prospective business conditions in the state and nation, as well as for respondents' own operations. On the Index's 100-point scale, a reading above 50 indicates that the state's employer community is predominantly optimistic, while a reading below 50 points to a negative assessment of business conditions. A number of component sub-indices are derived by analyzing responses to selected questions or those of particular groups of respondents.
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