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Business Confidence Index Climbs in July

BOSTON — The Associated Industries of Massachusetts (AIM) Business Confidence Index showed further strength in July, adding 2.5 points to 56.2.

“Business confidence in Massachusetts, after sliding into the neutral range for more than a year, has climbed back to within a point of its post-recession high of 57.1 in April 2012,” said Raymond Torto, chair of AIM’s Board of Economic Advisors (BEA) and lecturer at the Harvard Graduate School of Design.

The index was up 3.7 points compared to July 2013. Last year, Torto noted, uncertainty arising from political deadlock in Washington and the threat of financial crisis in Europe, plus fiscal drag from tax increases and unsteady economic growth in the U.S. and globally, held down confidence.

“However, this year, we have seen rising business confidence and, not coincidentally, more robust job creation,” he went on. “The biggest year-to-year gainers among our sub-indices are those tracking general business conditions in the state and nation, which appears to reflect a growing sense among employers that they are operating in something like a normal economy.”

AIM’s Business Confidence Index has been issued monthly since July 1991 under the oversight of the Board of Economic Advisors. Presented on a 100-point scale on which 50 is neutral, its historical high was 68.5, attained in 1997 and 1998; its all-time low was 33.3 in February 2009. All but one of the sub-indices based on selected questions or respondent characteristics were up from June to July, and all were above their levels of a year before.

The Current Index, tracking employers’ assessment of existing business conditions, added three points from June to 55.8, while the Future Index, measuring expectations for the next six months, rose two points to 56.6.

“Since its stumble in the first quarter, the economy has rebounded well, and employment has been trending up,” remarked BEA member Michael Tyler, chief investment officer at Eastern Bank Wealth Management. “It is gratifying to see more people returning to the workforce and finding jobs. If this trend continues to gain momentum, the Federal Reserve will need to rein in overly optimistic expectations by raising interest rates sometime next year.”

The U.S. Index of business conditions prevailing nationally rose 3.7 points in July to 51.9, and the Massachusetts Index of conditions within the Commonwealth gained 4.9 to 55.8. Compared to last July, these sub-indices were up 5.9 and 6.4, respectively.

“The state indicator is higher and has risen more, but was at this level as recently as April 2012,” said Tyler. “The U.S. Index, by contrast, has not been this high since August 2007, or above 50 since October 2007, before the recession. The national economy faced something of a stress test in the first quarter of this year, and passed it.”

The Company Index, which measures survey respondents’ overall confidence in the situations of their own operations, rose 1.5 points in July to 58.0. The Employment Index added 1.4 points to 56.0, and the Sales Index edged up three-tenths to 57.9. Each was up between two and three points on the year.

“Many Massachusetts employers added staff in the first half of the year, with additions outweighing reductions by almost three to one (34% to 12%), and expectations for the next six months are similar,” said Sara Johnson, senior research director of Global Economics at IHS Global Insight, a BEA member. “Greater confidence in the stability of the economy is at last making employers more willing to hire.”

Confidence was up in July among manufacturers (+5.1 to 56.6) and off slightly among other employers (-0.8 to 56.0). There was a similar small difference in confidence levels between employers outside Greater Boston (56.6, +3.8) and those within the metropolitan area (56.0, +1.8). Large employers were somewhat more confident than small ones, but all size groupings were on the positive side.

“We have been seeing greater consistency in our survey responses across sector, geography, and size for several months, and that continued in July,” Johnson noted. “In Massachusetts, as in the country as a whole, some regions and industries came back from the recession much more quickly than others, but as time goes on, the differences are evening out, or at least becoming less stark.”

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