Business Confidence Rises Again in June
BOSTON — Confidence among Massachusetts employers rose for the fifth time in six months during June amid signs that the recovery of the labor market is gaining momentum.
The Associated Industries of Massachusetts (AIM) Business Confidence Index rose 1.5 points to 63.4 last month, leaving it 14.4 points higher than a year ago. The increase was driven in part by the brightest assessment of the employment picture since April 2018. Hiring appears to be picking up after companies struggled for months with one of the tightest labor markets in decades.
Nationally, the government announced that U.S. employers added 850,000 jobs in June, well above the average of the previous three months and a sign that companies may be having an easier time finding enough workers to fill open jobs.
The Massachusetts unemployment rate fell to 6.1% during May as employers created 9,200 jobs. Massachusetts has gained an estimated 357,000 jobs during the past 12 months.
“The June Business Confidence Index and the most recent government reports suggest that hiring is accelerating as employers attract workers with higher pay. Wages nationally jumped 3.6% last month from a year ago,” said Sara Johnson, chair of the AIM Board of Economic Advisors (BEA) and executive director of Global Economics at IHS Markit. “At the same time, there are 6.8 million fewer jobs in the United States than before the pandemic, meaning we still have a long way to go in the employment recovery.”
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 Business Confidence Index were mostly positive during June. The Employment Index rose 2.5 points as companies finally began to locate workers to fill open jobs and boost output. The employment reading has increased by more than 11 points since June 2020.
The confidence employers have in their own companies rose slightly to 64.7, 13.1 points more than it was a year ago. The Massachusetts Index assessing business conditions within the Commonwealth increased 2.9 points to 63.6, up 16.8 points since June 2020. The U.S. Index measuring conditions nationally gained 1.3 points in June and 15.2 points for the year.
The Current Index, which assesses overall business conditions at the time of the survey, gained 3.0 points to 63.3. The Future Index, measuring projections for the economy six months from now, was almost flat, losing 0.1 point to 63.4. Confidence among manufacturing companies declined 0.8 points, but remained 11.5 points higher than its year-earlier level.
Large companies (66.4) were more bullish than medium-sized companies (62.0) or small companies (60.7). Companies in Eastern Mass. (67.1) were significantly more confident than those in Western Mass. (59.6)
Michael Tyler, CFA, vice chair of BEA and chief Investment officer at Eastern Bank Wealth Management, said the risk of sustained long-term inflation remains low despite the near-term upward pressure on wages and some commodities.
“There is some inflation, to be sure, but mostly it’s due to base effects (that is, low prices a year ago when lockdowns were in place) or supply-chain disruptions that can be resolved.,” he said. “Today’s inflation should not be misinterpreted as a fundamental shift in the current economic climate.”
AIM President and CEO John Regan, also a BEA member, said the recent debate over whether the Massachusetts Legislature or Gov. Charlie Baker should control distribution of $5.3 billion in federal stimulus money from the American Rescue Plan Act should not obscure the importance of using some of the money to stabilize the unemployment-insurance system. The Legislature and governor froze unemployment-insurance rates and separately spread out an unexpected surge in solvency rates over the next 20 years.
“The unemployment system will still be burdened for decades by the fallout from COVID-19 and the economic shutdowns of 2020,” Regan said. “The one step that remains is for policymakers to use some of Massachusetts’ federal stimulus money to stabilize the unemployment system for the long term.”