Business Confidence Rises to Begin 2024
BOSTON — Moderating inflation, sustained economic growth, and the prospect of lower interest rates boosted confidence among Massachusetts employers during the first month of 2024. Not every sector of the economy, however, broke out the party hats.
The Associated Industries of Massachusetts (AIM) Business Confidence Index gained 0.9 points to 53.5 in January, hitting an 11-month high that left it comfortably in optimistic territory. The Index was 0.3 point higher than in January 2023.
The strengthening of business confidence came as the U.S. economy grew at a 3.3% annual rate during the fourth quarter of 2023, labor markets remained strong, and inflation steadied at about one-third of its high point in June 2022. The Federal Reserve held its federal funds rate steady last week as Chair Jerome Powell said the Fed seeks a “true signal” that it is time to reduce rates.
“The U.S. economy grew at a surprisingly robust pace in the second half of 2023, outpacing the economies of Europe and other developed countries,” said Sara Johnson, chair of the AIM Board of Economic Advisors (BEA). “Businesses expect more subdued U.S. growth in 2024 amid multiple geopolitical risks. Thus, Massachusetts employers are becoming more cautious in their hiring decisions.”
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 January results highlighted a growing confidence gap between manufacturing companies and non-manufacturers. Confidence among Massachusetts manufacturers fell 3.4 points to 46.4 in January, while companies outside the manufacturing sector registered a 3-point jump to 57. Analysts believe manufacturers remain concerned about weakness in residential investment, business fixed investment, and motor-vehicle purchases, driven in part by the lagged effects of higher interest rates.
The Central Massachusetts Business Confidence Index, conducted with the Worcester Regional Chamber of Commerce, fell from 50.0 to 49.1. The North Shore Confidence Index, conducted with the North Shore Chamber of Commerce, surged from 52.1 to 57.3. The Western Massachusetts Business Confidence Index, developed in collaboration with the Springfield Regional Chamber of Commerce, rose from 48.9 to 50.4.
The constituent indicators that make up the Index were mixed during January. The confidence employers have in their own companies gained 1.7 points to 54.5, ending the month 2.0 points less than in January 2023.
The Massachusetts Index assessing business conditions within the Commonwealth declined 0.6 point to 54.0, leaving it 3.8 points higher than a year earlier. The U.S. Index measuring conditions throughout the country ended the month at 50.4, 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 1.3 points to 52.5. The Future Index gained 0.6 points to 54.6 as employers saw improvement ahead in the first half of 2024.
The drop in the Manufacturing Index left that measure 4.4 points below the level of a year ago. Meanwhile, the Employment Index lost 0.9 points to 51.6, leaving it 4.7 points less than in January 2023. Large companies (55.4) were more optimistic than small companies (54.0) and medium-sized companies (51.0).
Michael Goodman, professor of Public Policy at UMass Dartmouth and a BEA member, said the Massachusetts economy has been remarkably resilient in the face of the Fed’s 18-month campaign to moderate inflation.
“Solid job creation and robust consumer spending helped the state economy expand at an estimated 3.8% annualized rate of growth during the third quarter,” Goodman noted. “And the Census Bureau recently reported that the state’s population grew during 2023, underscoring the Commonwealth’s growing reliance on international immigration as a source of population and labor-force growth.”
AIM President Brooke Thomson, also a BEA member, said Gov. Maura Healey’s announcement at the January AIM Executive Forum that state government will eliminate unnecessary educational requirements for many jobs highlights a trend among private employers working to create new opportunities for people who may not have degrees or diplomas.
“We celebrate the fact that Massachusetts has the best higher-education system on the planet,” Thomson said, “but we also have to create opportunities for that half of the population who have tremendous skills and the potential to contribute to the economic future of the Commonwealth.”