Daily News

Business Confidence Hits 10-month Low in December

BOSTON — Resurgent COVID-19 disruptions, persistent supply-chain issues, and a slowing state economy pushed confidence among Massachusetts employers to a 10-month low at the end of 2021.

The Associated Industries of Massachusetts (AIM) Business Confidence Index declined 1.2 points to 56.7 in December. The Index remains within optimistic territory, 7.4 points better than a year ago, but has now declined for five consecutive months.

Employers remain upbeat about the fundamental strength of the economy, but their confidence is muted by the evolving public-health crisis, rising prices, and a structural labor shortage.

“The December Business Confidence Index reflects companies attempting to maintain operations and grow business amid the sudden spread of the Omicron variant of COVID-19. Travel, healthcare, hospitality, and other service industries began to experience increased employee absences in an already-tight labor market,” said Sara Johnson, chair of the AIM Board of Economic Advisors (BEA) and executive director of Global Economics at IHS Markit.

Inflation remains a major concern for Massachusetts companies. “Our inability to predict where material costs will be three to six months from now is a terrible burden on our business and our bottom line,” wrote one survey participant.

The Massachusetts economy, which grew at a 6.1% annual clip during the first quarter of 2021 and 8% during the second quarter, slowed to a 2% annual growth rate during the July-September period, according to MassBenchmarks.

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 mostly lower during December. The confidence employers have in their own companies slid 1.2 points to 59.9, leaving it 6.8 points better than it was a year ago. The Massachusetts Index assessing business conditions within the Commonwealth declined 1.7 points to 55.6, up 7.2 points since December 2020. The U.S. Index measuring conditions nationally shed 0.9 points in December to remain in pessimistic territory at 47.9.

The Current Index, which assesses overall business conditions at the time of the survey, lost 1.6 points to 56.1. The Future Index, measuring projections for the economy six months from now, declined 0.8 points to 57.3

The Manufacturing Index was the only indicator to rise during the month, gaining 2.1 points to 55.3. The Employment Index lost 0.6 points to 55.6.

Medium-sized companies (58.9) were more bullish than large companies (57.5) or small companies (53.5).

Katherine Kiel, professor of Economics at the College of the Holy Cross and a BEA member, said companies are struggling to budget for 2022 because inflation has reached a 30-year high of 6.8% nationally.

“Commodity prices remain volatile, and companies report that supply-chain delays on key components continue to slow project schedules,” she noted. “Wage inflation is also playing a role as employers work hard to hire and retain qualified workers across a range of industries.”

AIM President and CEO John Regan, also a BEA member, said employers remain fundamentally optimistic about the economy at a time of both extraordinary hope and unprecedented uncertainty.

“We face an ever-mutating public-health crisis, a generational shortage of qualified workers, supply-chain disruptions, the highest inflation since the early 1990s, and shifting expectations about the nature of work itself,” Regan said. “Despite these challenges, however, many Massachusetts companies and their employees are finding ways to thrive. Many members of the AIM board of directors tell me their companies posted record results in both 2020 and 2021. And Massachusetts employers have created 519,500 jobs since the employment trough in April 2020, boosting the labor-force participation rate from 60.4% to 66.3%.”