Business Confidence Rises in Massachusetts as 2023 Comes to a Close
BOSTON — Brightening prospects for an economic soft landing bolstered confidence among Massachusetts employers as an unpredictable 2023 drew to a close.
The Associated Industries of Massachusetts (AIM) Business Confidence Index gained 1.6 points to 52.6 in December, hitting a nine-month high that left it in optimistic territory at year end. The Index was 1.4 points lower than the same time last year.
The strengthening of business confidence came amid strong signals that inflation continues to moderate at a 3.1% annual rate. Federal Reserve Chair Jerome Powell said on Dec. 13 that interest-rate increases appear to be over for now and that there may be three reductions in interest rates during 2024.
“The good news is that the pace of inflation has slowed noticeably since mid-2022. This should give the Fed some confidence that tighter monetary policy is working without widespread job losses,” said Sara Johnson, chair of the AIM Board of Economic Advisors (BEA).
The Central Massachusetts Business Confidence Index, conducted with the Worcester Regional Chamber of Commerce, rose from 49.6 to 50.0. The North Shore Confidence Index, conducted with the North Shore Chamber of Commerce, remained essentially flat at 52.1. The Western Massachusetts Business Confidence Index, developed in collaboration with the Springfield Regional Chamber of Commerce, fell from 51.8 to 48.9.
The constituent indicators that make up the Index all strengthened during December. The confidence employers have in their own companies gained 0.8 point to 52.8, ending the month 4.4 points less than in December 2022.
The Massachusetts Index assessing business conditions within the Commonwealth increased 2 points to 54.6, leaving it 2 points higher than a year earlier. The U.S. Index measuring conditions throughout the country ended the month at 49.9, which is 3.7 points better than a year ago.
The Current Index, which assesses overall business conditions at the time of the survey, climbed 0.6 point to 51.2. The Future Index gained 2.6 points to 54.0 as employers saw improvement ahead in the first half of 2024.
The Manufacturing Index gained 1.9 points to 49.8, still 5.5 points below its level of a year ago. Confidence among non-manufacturing companies was up 1.1 points to 54.0. The highlight of the December results was the Employment Index, which surged 3.8 points to 52.5. Large companies (54.2) were more optimistic than small companies (52.2) and medium-sized companies (50.7).
Nada Sanders, distinguished professor of Supply Chain Management at Northeastern University and a BEA member, said the easing of the product shortages and supply-chain disruptions that marked the immediate post-pandemic years has played an important role in moderating inflation.
“The Federal Reserve believes that supply constraints explain half of the increase in inflation during 2021-22 and that tight capacity served to amplify the impact of loose monetary policy in 2021,” Sanders noted. “The resolution of those supply constraints is one reason that inflation eased so dramatically in 2023.”
AIM President Brooke Thomson, also a BEA member, suggested that Massachusetts needs a new, far-reaching approach to economic development, one that seamlessly melds competitiveness for the business community with affordability for the residents who work at Massachusetts-based companies and live in the Commonwealth.
“Make no mistake, we must continue to prioritize the traditional pillars of economic development, like advantageous tax rates, streamlined regulation, and efficient permitting,” Thomson said. “But economic development must also address the soaring cost of everything from housing to childcare to healthcare, which is driving some of our best and brightest employees to less expensive regions of the country.”
