Employer Confidence Begins 2018 with Increase

BOSTON — Massachusetts employers began 2018 much the way they ended 2017 — with growing confidence in the economy and optimism about their own business prospects.

The Associated Industries of Massachusetts (AIM) Business Confidence Index rose a half-point to 64.1 during January, setting another 17-year high. The Index has gained 2.7 points during the past 12 months as employer confidence levels have remained comfortably within the optimistic range.

Growing enthusiasm about the Massachusetts economy and a brightening outlook on economic conditions six months from now fueled the January confidence increase. At the same time, the hiring outlook remained muted as low unemployment and demographic shifts continued to impede the ability of employers to find the workers they need. The survey was taken prior to major declines in global financial markets during the past several days.

“Rising confidence is not surprising in a state with 3.5% unemployment and an economy that grew at a 3.3% annual rate during the fourth quarter,” said Raymond Torto, chair of AIM’s Board of Economic Advisors (BEA) and lecturer at Harvard Graduate School of Design. “Economic output, job growth, and spending all rose at a healthy clip in Massachusetts during the final three months of the year, and economists expect modest growth to continue during the first half of 2018.”

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. It has remained above 50 since October 2013.

The constituent indicators that make up the overall Business Confidence Index were mixed during January. The most significant gain came in the Massachusetts Index assessing business conditions within the Commonwealth, which rose 1.3 points to 68.9. The Massachusetts Index has gained 3.7 points in the past two months, 5.5 points year over year, and now stands at its highest level since November 2000.

The U.S. Index of national business conditions also continued a yearlong rally by gaining 0.6 points to 64.8. January marked the 95th consecutive month in which employers have been more optimistic about the Massachusetts economy than the national economy.

The Current Index, which assesses overall business conditions at the time of the survey, decreased a point to 61.7, while the Future Index, measuring expectations for six months out, surged 2.1 points to 66.6. The Current Index has risen 2.1 points and the Future Index 3.3 points during the past 12 months.

The Company Index, reflecting employer views of their own operations and prospects, rose slightly, gaining 0.2 points to 62.3. The Employment Index was essentially flat, leaving it 2.1 points below its level of January 2017. Non-manufacturing companies (66.6) were more optimistic than manufacturers (62.3). Large employers (67.2) were more bullish than medium-sized companies (62.7) or small businesses (63.5).

“The strong Future Index readings signal that employers anticipate steady growth during the first two quarters of 2018. The only fly in ointment remains the prospect that labor shortages may constrict the ability of companies to grow and expand,” said Paul Bolger, president, Massachusetts Capital Resource Co., and a BEA member.

AIM President and CEO Richard Lord, also BEA member, said 2018 brings with it significant risk for employers as progressive groups push ballot questions that could create a $1 billion paid family and medical leave program, impose a punitive tax on many small businesses, and raise the state minimum wage to $15 per hour.

“The Massachusetts Supreme Judicial Court will today hear arguments in a challenge that I and four other business leaders filed to the constitutionality of the income surtax question,” Lord noted. “Meanwhile, the business community is seeking common ground on a compromise paid-leave proposal that will not harm the economy.”