Business Confidence in Massachusetts Flat in June

BOSTON — Business confidence remained flat during June amid a resilient economy, stubborn inflation, a pause by the Federal Reserve, and a shortage of workers across almost every industry.

The Associated Industries of Massachusetts (AIM) Business Confidence Index gained 0.1 point to 49.7, just below the 50 mark that separates optimistic from pessimistic outlooks. Confidence ended the month 1.1 points lower than a year earlier.

The mixed reading reflects an economy that continues to defy expectations in the face of 10 interest-rate increases by the Federal Reserve. The Fed paused rate increases last month as inflation moderated to 4%, but more hikes are likely since the Fed’s target inflation rate is 2%.

Though many national economists believe a recession remains probable, the Massachusetts job market remains strong, with the unemployment rate dropping to 2.8% in May.

“As 2023 reached its midpoint, we experienced a tech-fueled stock-market rally instead of the recession many economists believe is inevitable,” said Sara Johnson, chair of AIM’s Board of Economic Advisors (BEA). “Employers tell us that, even though they worry about rising prices, they also remain desperate to find workers in a tight labor market.”

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 Western Massachusetts Business Confidence Index, developed in collaboration with the Springfield Regional Chamber of Commerce, was unchanged in June at 45.7.

The statewide constituent indicators that make up the Index were mixed in a narrow range during June. The confidence employers have in their own companies edged up 0.1 point to 51.9, ending the month 4.1 points less than June 2022.

The Massachusetts Index assessing business conditions within the Commonwealth fell 0.2 point to 49.5, leaving it up 2.3 points from a year earlier. The U.S. Index measuring conditions throughout the country gained 0.8 point to 43.4, remaining in pessimistic territory for a ninth consecutive month.

The Current Index, which assesses overall business conditions at the time of the survey, fell 0.6 points to 50.7. The Future Index, measuring projections for the economy six months from now, gained 0.9 point to end the month at 48.7.

The Manufacturing Index dropped 0.8 point to 45.7, ending the month 3.6 points lower than a year ago. Confidence among non-manufacturing companies was up 0.3 points to 52.1. The Employment Index gained 0.4 point to 51.2. Small companies (51.2) were slightly more optimistic than large companies (49.6) and medium-sized companies (48.5).

Marcelo Suárez-Orozco, chancellor of UMass Boston and a member of the BEA, said the presence of a worker shortage even in a slowing economy underscores the importance of educational institutions preparing the next generation of employees, especially the fast-growing demographic of immigrant-origin students.

“The only group growing enrollments in higher education is immigrant origin students — and they are projected to be the primary group driving growth of the U.S. labor market into 2035. They play a particularly important role in the science, technology, engineering, and math sector of the economy,” Suárez-Orozco said.

AIM President and CEO John Regan, a BEA member, said employers have been encouraged by the fact that all three elements of Massachusetts state government — Gov. Maura Healey, the House of Representatives, and the Senate — have passed versions of tax reform. Tax changes are expected to improve the Commonwealth’s economic competitiveness while also helping individuals struggling with rising costs for food, housing, and other staples.

“The governor and the House are wisely seeking tax changes that will improve our economic climate that has seen tens of thousands of Massachusetts residents leave the state in recent years,” Regan said. “We look forward to the final version of tax relief from the conference committee.”