Massachusetts Business Confidence still low; jobs at risk

Published on Tuesday, April 07, 2009

The Associated Industries of Massachusetts Business Confidence Index edged up to 33.5 in March, a bare two-tenths of a point above February’s all-time (18-year) low. “A year after the AIM Index ‘called’ the recession, the numbers remain very weak, reflecting the current state of the economy in Massachusetts and beyond, but there are some positive hints in the survey results as well,” said Raymond G. Torto, Global Chief Economist at CB Richard Ellis Group, Inc. and Chair of AIM’s Board of Economic Advisors (BEA). “Though changes from February to March were generally small, employers were a bit more confident in their own firms’ situation, which points to declining uncertainty, and they were more hopeful that business conditions will improve over the next six months.”

Torto noted that the Index’s first quarter average, 34.5, was by far the lowest ever. “It’s the average of three of the four lowest monthly readings, the other being December’s,” he said. Over one year change, from March 2008, the Index was off 13.9 points, with declines over two, three, and four years exceeding 20 points. The record high was 68.5 on the 100-point scale, achieved in November 1997 and May 1998.

The U.S. Index, the sub-index assessing business conditions prevailing nationally, lost six-tenths in March to 25.6, while the Massachusetts Index of conditions within the Commonwealth was down two-tenths to 29.5. “The national figure is the lowest we’ve seen, but the state indicator is above its worst levels in 1991-92,” said BEA member Sara L. Johnson, Managing Director of Global Macroeconomics at IHS Global Insight. “Although the U.S. Index (down 14.2) has declined more than the Massachusetts Index (down 11.8) over the past year, as well, the Commonwealth is now fully involved in a very serious national and global recession. Only two percent of survey respondents rated state conditions ‘good,’ the same result as for national conditions.”

The Current Index of conditions prevailing at the time of the survey lost seven-tenths in March to 30.3, another record low, and down 16.3 from March 2008. The Future Index of expected conditions six months ahead, by contrast, gained nine-tenths to 36.9, holding its annual loss to 11.2. “This is positive in the sense that employers do expect some improvement in the economic climate by the end of the third quarter,” said Johnson, “though most expect that national and state business conditions will still be poor in September.”

Employment Indicator Falls Again

“The March survey results on company issues are mixed,” said BEA member Donald J. Barry Jr., Senior Vice President at Citizens Bank in Boston. “The Company Index, which measures survey respondents’ overall confidence in the situations of their own operations, was up half a point to 37.4, breaking a string of six consecutive monthly declines; and the Sales Index, which had fallen by 16.5 points from September to February, from rose six-tenths to 34.1. The biggest change, however, came in the Employment Index, which dropped 2.5 points in March to 35.5, its all-time low. With no end in sight to what is already a long recession, very few companies are hiring, and many employers have no option but to reduce staffing levels.”

There was little difference in confidence levels between manufacturers (33.0, +1.3) and other employers (33.9, -1.8). Employers of all sizes were in general agreement on most questions, with small firms significantly more negative than others about current sales trends and about future Massachusetts conditions. By region, the March survey showed confidence up sharply in Greater Boston (36.7, +5.1) and down elsewhere in the state (31.4, -3.2) but this is probably a statistical anomaly; the three-month averages (35.2 – 3.41) are similar.

Keep Massachusetts Working

“There are some glimmers of hope in the March results, as there are in other recent economic reports” said Richard C. Lord, AIM’s president and CEO, a BEA member, “but unfortunately few if any of these relate to employment.” He pointed to accelerating job losses at both the national and the state level, as well as to the record low reading of the Business Confidence Index’s employment indicator.

“A separate, targeted survey of AIM members found that that more than 40% had reduced employee work hours, and had conducted a layoff or were preparing to do so; most have frozen salaries for 2009, and 86% have altered staffing plans,” Lord said. “This climate of economic disruption and uncertainty engenders stress not only for employees but also for employers, who face difficult and sometimes heartbreaking decisions as they fight for survival. Now is the time to pull together to preserve our state’s employment base and keep Massachusetts working.”

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.

Media Contacts:
Raymond G. Torto, Ph.D., Torto, CB Richard Ellis Group, Inc., (617) 912-5225
Donald J. Barry, Jr., Sr. Vice President, Citizens Bank, (617) 725-5810
Fred Breimyer, Regional Economist, FDIC, (781) 794-5675
Sara L. Johnson, Managing Director of Global Macroeconomics, IHS Global Insight, (781) 301-9115
Alan Clayton-Matthews, Ph.D., McCormack Graduate School of Policy Studies, UMass/Boston, (617) 512-6224
Richard C. Lord, President, Associated Industries of Massachusetts, (617) 262-1180