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Employer Confidence in Massachusetts Falls in May

BOSTON — Employer confidence weakened in Massachusetts during May amid renewed trade tensions and concerns among companies about increased operating costs from paid family leave and other government mandates.

The outlook among business leaders has moved in a narrow, overall optimistic range for much of 2019. However, the Associated Industries of Massachusetts (AIM) Business Confidence Index lost 3.2 points last month to 57.1, its lowest level since October 2016. The Index has declined 9.5 points since May 2018.

All the constituent indicators that make up the BCI weakened during May, with the largest drop coming in employer views of conditions six months from now. The erosion of confidence during the past 12 months has been driven largely by caution about the national economy and concern among manufacturing companies.

“The Business Confidence Index continues to reflect the Goldilocks economy in which we find ourselves — U.S. GDP growth is expected to remain at a modest level of 2% to 3%, and there is not much inflation or deflation. There are both encouraging signs and red flags,” said Raymond Torto, chair of AIM’s Board of Economic Advisors (BEA) and lecturer at Harvard Graduate School of Design.

Several employers participating in the survey said regulatory costs have become a significant concern. “The cost to operate has increased dramatically — higher wages, benefit costs, supply costs, and cost of compliance with all the new regulations coming out of the State House,” one employer wrote.

Constituent indicators showed a broad-based retrenchment during May. The Massachusetts Index assessing business conditions within the commonwealth fell 2.3 points to 60.9, while the U.S. Index shed 3.3 points to 55.0. The Massachusetts reading has declined 9.1 points during the past 12 months, and the U.S. reading has dropped 14.3 points during the same period.

The Future Index, measuring expectations for six months out, tumbled 4.5 points to 56.0. The Current Index, which assesses overall business conditions at the time of the survey, lost 1.8 points to 58.2, 8.4 points lower than a year ago. The Employment Index declined 1.2 points for the month and 5.1 percent for 12 months. Analysts say employers continue to struggle to find qualified workers in a state economy with a 2.9% jobless rate.

AIM President and CEO John Regan, also a BEA member, said the national economic uncertainty comes at a time when Massachusetts employers are struggling with a series of expensive new employment-law mandates such as the state’s $1 billion paid family and medical leave program.

“AIM has joined Raise Up Massachusetts and other groups in asking the Baker administration to delay the scheduled July 1 start of paid leave by three months to provide employers time to consider how much of the cost they will share with workers and whether they wish to opt out of the state system,” Regan said. “The delay is necessary to ensure a smooth rollout of this new entitlement.”

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