Business Confidence Up in July on Strong Current Conditions
BOSTON — The Associated Industries of Massachusetts (AIM) Business Confidence Index added 2.9 points in July to 59.2, ending a string of three consecutive monthly losses.
“Bouncing back from its dip in the second quarter, confidence among Massachusetts employers is fairly strong,” said Raymond Torto, Chair of AIM’s Board of Economic Advisors (BEA) and lecturer at Harvard Graduate School of Design. “The AIM Index is up three points from last July and, apart from its recent crest in February and March, is at its highest level since December 2006.”
Torto noted that the Index’s recent performance extends a pattern that has prevailed for much of the post-Great Recession period. “Like the economy itself, the Index has followed a long-term trend of improvement, but the upward course has been longer and bumpier than most past recoveries.”
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, the Index attained a historical high of 68.5 in 1997 and 1998; its all-time low was 33.3 in February 2009.
The sub-indices based on selected questions or respondent characteristics all rose from June to July, and most were up from a year before.
The U.S. Index assessing national business conditions gained 2.5 points to 50.1, and Massachusetts Index of conditions within the Commonwealth rose six-tenths to 57.5.
“The domestic economy, after a weak first quarter, is experiencing solid expansion, and Massachusetts continues to perform well in the national context,” said BEA member Sara Johnson, senior research director of Global Economics at IHS Global Insight. “Growth in international trade, however, has been disappointing, as improving conditions in Europe have been more than offset by the slowdown in Asia.”
The Current Index, tracking employers’ assessment of existing business conditions, was up 3.5 to 59.7, while the Future Index, measuring expectations for the next six months, added 2.2 to 58.6.
“The rating of current conditions is the best we have seen since the same reading in October 2006,” Johnson said. “The slightly lower future expectations probably reflect the Federal Reserve Board’s expressed intent to raise interest rates.”
The three sub-indices related to survey respondents’ own companies were all well ahead in July. The Company Index, which assesses the overall situations of their operations, was up 3.7 points to 61.7; the Sales Index rose 5.3 to 63.2; and the Employment Index added 2.5 to 57.2.
“The Company and Sales indicators are at their highest levels since 2006, and the Employment Index is also in its pre-recession range,” noted Elliot Winer, chief economist at Northeast Economic Analysis Group LLC, a BEA member. “These results are consistent with survey respondents’ favorable appraisal of prevailing business conditions and with recent state employment reports.”
In July, confidence remained higher among employers within Greater Boston (61.3, up 3.9) than among those outside the metropolitan area (55.8, up 1.1). Manufacturers continued to be less confident (55.7, up 3.1) than other employers (62.9, up 2.9).
“Massachusetts manufacturers, many of them in the central and western parts of the state, are seeing exports suffer because of the strong dollar and difficult conditions in key markets,” Winer said. “The indicators from the manufacturing sector and for the state outside Greater Boston are the only sub-indices that have lost ground, though less than a point each, over the past year.” There was little variation in confidence between small, medium-size, and larger employers.
Commenting on the July Business Confidence Index survey results, Richard Lord, AIM’s president and CEO and a BEA member, stressed the positive assessment of business conditions among respondents.
“Over the previous three months, we saw that confidence can be damaged by uncertainty, even in peripheral areas like the Greek crisis,” he said. “In July, we see that, as such concerns fade, the underlying strength of the economy, and of confidence among Massachusetts employers, comes to the fore again.”
Lord noted, however, that the results included contrasting views of the state’s business climate. “There is a 10-point regional gap in how respondents rate Massachusetts conditions — very positive within Greater Boston, barely positive elsewhere. This reminds us that good economic analysis and policy must take account of the broad range of industries and communities.”
By employer size, Lord added, the smallest firms, up to 25 employees, rated in-state conditions higher than mid-sized and larger employers.
“Here we see a significant turnaround compared to the recent past,” he said. “Along with a stronger economy, these small employers — who often feel vulnerable to government mandates — are encouraged by a sense that Beacon Hill recognizes their concerns on issues ranging from MBTA reform to smooth implementation of the paid-sick-leave law.”