Employer Confidence Creeps into Optimistic Territory

BOSTON — Massachusetts employers began 2021 by turning optimistic for the first time since the COVID-19 pandemic shut down large swaths of the state and national economies last spring.

The Associated Industries of Massachusetts (AIM) Business Confidence Index climbed to 52.4 during January, surpassing the 50 mark that denotes an optimistic view of the economy. The reading was 14 points higher than its 2020 nadir in April, but still almost 10 points below where it was in January 2020.

The confidence report comes as Massachusetts continues a halting and uneven economic recovery. The good news is that the state grew at a 7.9% annual rate in the fourth quarter, double the national pace. The sobering news is that the Massachusetts unemployment rate surged to 7.4% during December.

“Massachusetts companies continue to be optimistic about their own prospects, especially at a time when COVID-19 vaccines have arrived and the state appears to be making modest progress moderating the spread of the virus,” said Raymond Torto, professor at the Harvard Graduate School of Design and chair of the AIM Board of Economic Advisors (BEA).

“We are really looking at two economies — one dominated by finance, manufacturing, and technology that continues to grow, and a second made up of travel, tourism and other public-facing industries that are likely to struggle for some time to come.”

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 Business Confidence Index were all higher during January. Employers’ confidence in their own companies rose for a fourth consecutive month, increasing 1.6 points to 54.7. The Massachusetts Index assessing business conditions within the Commonwealth also crossed into optimistic territory, gaining 1.9 points to 50.3. The U.S. Index measuring conditions nationally surged 8.7 points to 47.7.

The Current Index, which assesses overall business conditions at the time of the survey, was up 3 points to 48.4. The Future Index, measuring expectations for six months out, rose 3.1 points to 56.4, still 6.4 points below its reading a year earlier.

The Employment Index gained 3.1 points to 52.6, suggesting that cautious employers may be looking to expand payrolls as soon as pandemic-driven restrictions are eased. Many employers that have operated throughout the COVID-19 crisis as essential business have reported challenges with hiring skilled workers.

Confidence among manufacturing companies was virtually flat at 51.1. The manufacturing index has dropped 11 points during the past 12 months.

Medium-sized companies (53.2) were more bullish than large companies (52.3) or small companies (51.2). Companies in Eastern Mass. (53.0) have a brighter outlook than those in Western Mass. (51.4).

Edward Pendergast, managing director of Dunn Rush & Co. and a BEA member, said the fact that the outlook for conditions six months from now is a full eight points higher than the assessment of current conditions sends a strong signal about the potential for economic recovery. “The hope is that employer confidence in their own company prospects continues to strengthen and drives decisions to increase investment moving forward.”

AIM President and CEO John Regan, also a BEA member, noted that the economy remains fragile as officials continue to wrestle with the public-health crisis.

“Hundreds of thousands of our friends and neighbors in Massachusetts remain out of work because of the pandemic. Many have left the workforce altogether. And the number of small businesses operating in Massachusetts during November was 37% less than in January 2020,” Regan said. “The watchword for policymakers in Massachusetts remains caution. The Baker administration and the Massachusetts Legislature have a unique opportunity to maintain the kind of business conditions that will encourage economic recovery and stability in 2021.”