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Business Confidence Flat in Massachusetts in February

BOSTON — Business confidence remained essentially flat during February as employers attempted to gauge whether inflation, recession, growth, or labor shortages would dominate the Massachusetts economy in 2023.

The Associated Industries of Massachusetts (AIM) Business Confidence Index gained 0.3 points to 53.5 last month, halting a two-month slide. The confidence level was 3.2 points lower than a year ago but still in optimistic territory.

Employer sentiment continues to be driven by a swirl of often contradictory economic signals. Leading indicators suggest that economic growth will decelerate during 2023, yet the state and national economies continue to exhibit a strong labor market, low unemployment, and a persistently high rate of inflation.

In January, the Federal Reserve’s preferred inflation gauge rose at its fastest monthly pace since June, a sign that price pressures remain entrenched in the U.S. economy to a degree that could lead the Fed to keep raising interest rates well into this year.

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 mixed during February. The confidence employers have in their own companies fell 0.8 points to 55.7, ending the month 2.9 points below February 2022.

The Massachusetts Index assessing business conditions within the Commonwealth jumped 3.2 points to 53.4, still down 4.3 points from a year earlier. The U.S. Index measuring conditions throughout the country gained 0.4 points to 47.1 for its fifth consecutive month in pessimistic territory.

The Current Index, which assesses overall business conditions at the time of the survey, fell 1.1 points to 54.5. The Future Index, measuring projections for the economy six months from now, gained 1.6 points to end the month at 52.5.

The Manufacturing Index tumbled 1.3 points to enter pessimistic range at 49.5. Confidence among non-manufacturing companies rose to 56.1. The Employment Index edged down 1.2 points to 55.1 as companies continued to scour a tight labor market for qualified workers. Small companies (54.8) were slightly more optimistic than large companies (54.3) or medium-sized companies (51.0).

Katherine Kiel, professor of Economics at the College of the Holy Cross and a BEA member, said the economy continues to defy predictions of a recession. “Consumer spending remains strong nationally, and the job market is still historically tight; Massachusetts payroll employment grew at an annual rate of 4.2% in the fourth quarter. At the same time, the fact that confidence among Massachusetts manufacturing companies has fallen into pessimistic territory is a matter of concern.”

AIM President and CEO John Regan, also a BEA member, said the $859 million tax-relief proposal announced last week by Gov. Maura Healey represents a positive step toward making Massachusetts more affordable and competitive.

“At a time when the cost of living in Massachusetts exceeds most other states, this package wisely identifies ways to help residents cut costs, reducing the financial burden on working families, while at the same time implementing tax changes that prevent Massachusetts from being an outlier,” Regan said. “Based on this budget, it is clear that the administration shares AIM’s concerns about the Commonwealth’s competitive future, and this is a critical first step toward ensuring sustained growth and economic strength.”

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