Business Confidence Weakens in March

BOSTON — Business confidence fell precariously close to pessimistic territory during March as Massachusetts employers managed challenges ranging from inflation to rising interest rates to banking disruptions.

The Associated Industries of Massachusetts (AIM) Business Confidence Index lost 2.0 points to 51.5 last month, its lowest level since October. The confidence level was 5.7 points lower than a year ago and just marginally higher than the 50.0 mark that separates optimistic from pessimistic.

Employer sentiment continues to be driven by mixed economic signals. While the outlook for U.S. real economic growth has improved over the past three months on some stronger-than-expected early-2023 data, including strong demand for labor, most economists still expect growth to decelerate as the Federal Reserve continues to raise interest rates to moderate inflation.

“At the global level, we see recession averted, thanks to solid growth in mainland China and the emerging markets of Asia Pacific,” said Sara Johnson, chair of the AIM Board of Economic Advisors (BEA). “The U.S. economy had a strong start to 2023, but tightening financial conditions could undermine growth over the remainder of the year. Labor-market conditions remain tight, keeping inflation above central bank targets in the U.S. and Western Europe.”

The new Western Massachusetts Business Confidence Index, developed in collaboration with the Springfield Regional Chamber of Commerce, debuted at 50.0. The Central Massachusetts Business Confidence Index, conducted with the Worcester Regional Chamber of Commerce, fell 1.9 points to 52.1, while the North Shore Confidence Index, conducted with the North Shore Chamber of Commerce, was also unchanged at 54.9.

The constituent indicators that make up the Index were all lower in March. The confidence employers have in their own companies fell 0.1 points to 55.6, ending the month 4.6 points below March 2022.

The Massachusetts Index assessing business conditions within the Commonwealth lost 4.1 points to 49.3, down 6.3 from a year earlier. The U.S. Index measuring conditions throughout the country declined 6.1 points points to 41.0 for its sixth consecutive month in pessimistic territory.

The Current Index, which assesses overall business conditions at the time of the survey, fell 1.6 points to 52.9. The Future Index, measuring projections for the economy six months from now, lost 2.5 points to end the month at the neutral mark of 50.0.

The Manufacturing Index slid 0.6 points to 49.5. Confidence among non-manufacturing companies was down 2.8 points to 53.3. The Employment Index edged down 0.3 points to 54.8 as companies continued to scour a tight labor market for qualified workers. Large companies (53.0) were slightly more optimistic than small companies (52.4) or medium-sized companies (50.4).

Suzanne Dwyer, president of the Massachusetts Capital Resource Company and a BEA member, said rapid action by regulators in the U.S. and Europe to limit the damage from the failures of Silicon Valley Bank (SVB), Signature Bank, and Credit Suisse appears to have stabilized the financial markets.

“The action by the Federal Reserve to insure all deposits at Silicon Valley Bank was particularly important here in Massachusetts, where significant numbers of technology and bioscience companies did business with SVB,” Dwyer said.

AIM President and CEO John Regan, also a BEA member, said supplier diversity is an important element to ensuring continued economic growth in Massachusetts. AIM Business Connect, the association’s initiative to link minority-owned businesses with companies seeking to diversify their supply spends, has already brokered a dozen business relationships.

“I was warned early on that it is hard work, and that has proven to be prophetic. But that doesn’t mean you don’t do the work,” Regan said. “We tried to emphasize that they don’t have to be extremely large contracts. They could be simple, [like] catering, developing marketing material, landscaping or janitorial, things that are the day-to-day needs of a business.”