Daily News

Business Confidence Enters Pessimistic Territory

BOSTON — Massachusetts employers turned pessimistic about the economy for the first time since December 2020 last month as the state economy slowed to a crawl and the Federal Reserve continued to raise interest rates.

The Associated Industries of Massachusetts (AIM) Business Confidence Index lost a half-point to 49.6 in May, just below the 50 mark that separates optimistic from pessimistic outlooks. Confidence ended the month 5.1 points lower than a year earlier.

The survey was largely completed before President Joe Biden and House Speaker Kevin McCarthy struck a deal to raise the nation’s debt ceiling and avert a U.S. default.

MassBenchmarks reports that the Massachusetts economy was essentially flat in the first quarter, growing at a 0.1% annual rate versus 1.1% for the nation. Employer confidence is reflecting that slowdown,” said Alan Clayton-Matthews, professor emeritus of Economics and Public Policy at Northeastern University. “At the same time, payroll employment remained strong in the first quarter, and unemployment rates remained low at 3.3% in April.”

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 Central Massachusetts Business Confidence Index, conducted with the Worcester Regional Chamber of Commerce, rose slightly from 50.3 to 50.4. The North Shore Confidence Index, conducted with the North Shore Chamber of Commerce, increased from 48.2 to 50.5. The Western Massachusetts Business Confidence Index, developed in collaboration with the Springfield Regional Chamber, fell to 45.7.

The constituent indicators that make up the Index were mostly lower in May. The confidence employers have in their own companies fell 1.4 points to 51.8, ending the month 6.8 points below May 2022.

The Massachusetts Index assessing business conditions within the Commonwealth rose 1.1 points to 49.7, down 4.1 from a year earlier. The U.S. Index measuring conditions throughout the country gained 0.2 points to 42.6, remaining in pessimistic territory for an eighth consecutive month.

The Current Index, which assesses overall business conditions at the time of the survey, fell 0.2 points to 51.3. The Future Index, measuring projections for the economy six months from now, lost 1.0 point to end the month at 47.8.

The Manufacturing Index dropped 2.2 points to 46.5, leaving it 8.0 points lower than a year ago. Confidence among non-manufacturing companies was up 0.7 points to 51.8. The Employment Index fell 0.8 points to 50.8. Large companies (50.8) were slightly more optimistic than medium-sized companies (50.2) and small companies (48.9).

Michael Tyler, chief investment officer at Eastern Bank Wealth Management and vice chair of the BEA, noted that “businesses have been stung by both stubbornly high inflation and persistently high interest rates, which have dampened demand and raised costs. It’s unfortunately not surprising that the Future Index indicates that business leaders expect these conditions to worsen further. Thankfully, a possible recession would likely be shallow and short, cushioned by a strong jobs market and healthy consumer spending.”

AIM President and CEO John Regan, a BEA member, added that employers will likely be encouraged in the coming months by the ability of Congress and the White House to reach an agreement on raising the debt ceiling.

“The President and Congress did the right thing in hammering out an agreement that will maintain the stability of the global financial system,” Regan said. “Employers need all the predictability they can get as the economy continues to slow down.”