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Business Confidence Slips to Begin 2023

BOSTON — A strong performance by the Massachusetts economy during the fourth quarter of 2022 was not enough to stem a two-month decline in business confidence among employers still concerned about a slowdown in 2023.

The Associated Industries of Massachusetts (AIM) Business Confidence Index lost 0.8 point to 53.2 during January. The Index began the new year 2.7 points lower than its level of January 2022 but still at a level that signals overall optimism.

Employers remain wary even though the Massachusetts economy grew at a 3.1% annual rate and the U.S. economy grew at a 2.9% annual rate during the fourth quarter. Companies are concerned that efforts by central banks to moderate inflation by raising interest rates might push the economy into recession.

At the same time, labor remains in tight supply despite high-profile layoffs at technology companies. U.S. employers added a staggering half-million jobs in January, and job vacancies remain at historic highs, with two openings for every unemployed person.

“The good news is that 12-month consumer price inflation moderated to 6.5% in December from a high of 9.1% in June 2022,” said Sara Johnson, chair of the AIM Board of Economic Advisors (BEA). “However, measures of core inflation — excluding food and energy — remain well above rates that are consistent with the Federal Reserve’s 2% inflation target. While the Fed slowed the pace of interest rate increases to just a quarter-point last week, it signaled that further rate hikes are coming.”

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 Index were mostly lower during January. The confidence employers have in their own companies fell 0.7 points to 56.5, ending the month 2.1 points below January 2022.

The Massachusetts Index assessing business conditions within the Commonwealth declined 2.4 points to 50.2, down 5.1 points from a year earlier. The U.S. Index measuring conditions throughout the country gained half a point to 46.7 but remained in pessimistic territory for the fourth consecutive month.

The Current Index, which assesses overall business conditions at the time of the survey, fell 0.1 points to 55.6. The Future Index, measuring projections for the economy six months from now, lost 1.5 points to end the month at 50.9.

The Manufacturing Index tumbled 4.5 point to 50.8 compared to a 54.8 reading among non-manufacturing companies. The Employment Index edged down 0.6 points to 56.3 as employers continued to scour a tight labor market for qualified workers. Large companies (53.9) were more optimistic that medium-sized companies (53.5) or small companies (52.1).

Michael Goodman, professor of Public Policy at UMass Dartmouth, noted that both the state and national economies ended 2022 on a strong note, but the outlook is for slowing growth in 2023.

“While the economic outlook is clouded by significant economic, national-policy, and geopolitical uncertainty — absent some unexpected negative development or ‘economic shock’ — the most probable trajectory for the national and state economy is for what Moody’s Analytics has described as a ‘slow-cession,’ a period of much slower growth in economic activity and employment,” Goodman said.

AIM President and CEO John Regan, a BEA member, said employers are encouraged that new Massachusetts Gov. Maura Healey is committed to making the Commonwealth an attractive place to do business by addressing taxes, housing costs, and the shortage of workers.

“We face a unique challenge because workers in the post-COVID world are making different choices, many based on improving their quality of life,” Regan noted. “If workers and employers face skyrocketing housing, energy, and healthcare costs on top of transportation challenges and lack of child-care and elder-care support, they will begin to look to new locations to work and raise a family.”

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