Business Confidence Dips at the End of 2022
BOSTON — Massachusetts employers ended a seesaw 2022 less confident in the economy than 12 months earlier, but nevertheless optimistic about their prospects in 2023.
The Associated Industries of Massachusetts (AIM) Business Confidence Index lost 4.7 points to 54.0 during December, giving up part of a large increase posted in November. The Index ended the year 2.7 points lower than its level of December 2021.
Employers remain concerned that efforts by central banks to moderate inflation by raising interest rates will slow the economy, perhaps into recession. At the same time, labor remains in tight supply, with many employers continuing to struggle to hire and retain employees.
“The path to 2% inflation will inevitably be painful. Most economists forecast a recession in the first half of 2023, led by declines in residential investment, commercial construction, inventory investment, and consumer spending on goods,” said Sara Johnson, chair of the AIM Board of Economic Advisors (BEA).
Participants in the Business Confidence Index survey reflected the shift in concern from rising prices to slowing growth. “I anticipate a recession in the second half of 2023, just beyond the six-month window of the survey,” one employer wrote.
The AIM Index, based on a survey of more than 140 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 constituent indicators that make up the Index were uniformly lower during December. The confidence employers have in their own companies fell 5.6 points to 57.2, ending the month 2.7 points below December 2021.
The Massachusetts Index assessing business conditions within the Commonwealth declined 3.6 points to 52.6, down 3.0 points from a year earlier. The U.S. Index measuring conditions throughout the country lost 2.4 points to 46.2 to remain in pessimistic territory for the third consecutive month.
The Current Index, which assesses overall business conditions at the time of the survey, fell 5.0 points to 55.7. The Future Index, measuring projections for the economy six months from now, lost 4.2 points to end the month at 52.4.
The Manufacturing Index declined 1.0 point to 55.3, compared to a 53.5 reading among non-manufacturing companies. The Employment Index lost 2.8 points to 55.7 as employers continued to scour a tight labor market for qualified workers.
Medium-sized companies (56.1) were more optimistic than large companies (53.8) or small companies (51.1).
Nada Sanders, Distinguished Professor of Supply Chain Management at Northeastern University, said the global supply-chain interruptions that have exacerbated inflation are slowly easing.
“With financial conditions tightening, a deceleration in goods demand is enabling supply to catch up, relieving bottlenecks,” she said. “Earlier fears of component shortages led to an inventory buildup that can now be strategically scaled back. The rebalancing of supply and demand has relieved congestion at ports and brought down shipping rates. Nevertheless, caution is needed as many potential supply-chain interruptions remain on the horizon.”
AIM President and CEO John Regan, a BEA member, said employer confidence varied widely during 2022 as the Federal Reserve attempted to harness inflation without sending the economy into recession.
“It was a year in which employers faced a multitude of challenges, from untangling supply systems and managing labor costs to retaining workers and processing new patterns of post-COVID customer behavior,” Regan said. “The good news is that Massachusetts remains well-positioned as a global center of technology and commerce and should be able to ride out an economic slowdown better than most states.”