Business Confidence Weakens in October

BOSTON — Confidence among Massachusetts employers weakened for a second consecutive month during October as rising interest rates began to take a toll on key economic sectors such as housing, finance, and technology.

The Associated Industries of Massachusetts (AIM) Business Confidence Index lost 3.0 points to 50.9, barely within the range that defines an optimistic outlook. The Index is now at its lowest level since June and 7.5 points short of its level a year ago.

The slide in confidence came as the Federal Reserve increased interest rates another three-quarters of a percentage point in an effort to control inflation. And though the Massachusetts economy grew at a 0.5% annualized rate during the third quarter, the Commonwealth also saw a slowdown in job growth and a decline in the labor force.

“Consumers continue to cautiously increase their spending, but we are starting to see higher interest rates adversely affect housing markets and related purchases such as furniture and appliances. Rising interest rates are also affecting the technology sector through constraints on the supply of venture capital and private investment funding,” said Sara Johnson, chair of the AIM Board of Economic Advisors (BEA).

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 October.
The confidence employers have in their own companies fell 1.3 points to 53.6, ending the month 7.6 points lower than in October 2021. The Massachusetts Index assessing business conditions within the Commonwealth, gained 3.1 points to 50.6, down 7.4 points from a year earlier. The U.S. Index measuring conditions throughout the country fell into pessimistic territory at 42.9.

The Current Index, which assesses overall business conditions at the time of the survey, decreased 2.5 points to 52.5. The Future Index, measuring projections for the economy six months from now, lost 3.5 points to end the month at 49.2.

The Manufacturing Index rose 1.6 points to 50.7, virtually identical to the 50.9 reading for non-manufacturing businesses. The Employment Index rose 1.6 points to 50.7 as employers continue to struggle to hire and retain talent.

Large companies (52.9) were more optimistic than medium-sized companies (51.5) and small companies (49.1).

Suzanne Dwyer, president of Massachusetts Capital Resource Co. and a BEA member, said companies are again hungry for capital after a period of consolidating debt following the COVID-19 pandemic.

AIM President and CEO John R. Regan, also a BEA member, said the workforce challenges facing employers may be more dire than anyone imagined. He noted that a survey released by MassINC this summer concludes that the working-age college-educated population of Massachusetts will decline by 10%, or 192,000 people, by 2030.

“Many AIM member businesses don’t need a survey to tell them what they already know: that labor shortages and lack of qualified talent, exacerbated by the impact of the COVID-19, have dealt a major blow to day-to-day operations,” he noted. “Our members across all industries are unable to fill positions with qualified candidates, and the Commonwealth is losing workers to lower-cost states.”