Employer Confidence in Massachusetts Hits 12-Year High

BOSTON — Confidence among Massachusetts employers hit its highest level in 12 years during December amid the prospect of growth initiatives from the new administration in Washington and a continued strong state economy.

The Associated Industries of Massachusetts (AIM) Business Confidence Index (BCI) rose 2.3 points to 60.4 last month, a full 5.1 points higher than its level in December 2015 and the highest reading since December 2004. It marked the fourth consecutive monthly increase in sentiment among employers in the Commonwealth, where the unemployment rate recently fell to 2.9%.

The November and December BCI readings mirror the post-election rally in U.S. financial markets, which have risen 5% as President-elect Donald Trump prepares to work with a Republican Congress on business-friendly issues such as tax reductions, regulatory reform, and infrastructure spending. The AIM survey showed a 5.5-point jump in confidence in the national economy last month, leaving that indicator at its highest level since 2007.

“Massachusetts employers are taking the president-elect at his word that he will prioritize economic growth at the national level, especially if he is able to work with Congressional Democrats on a $1 trillion infrastructure initiative,” said Raymond Torto, chair of AIM’s Board of Economic Advisors (BEA) and lecturer at Harvard Graduate School of Design. “But employer enthusiasm is also based upon a solid economic expansion during 2016 that most analysts believe will continue in a methodical manner though the first half of 2017.”

The AIM Index, based on a survey of 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 Index reached its historic high of 68.5 on two occasions in 1997-98, and its all-time low of 33.3 in February 2009. The index has remained above 50 since October 2013.

Almost all of the sub-indices based on selected questions or categories of employer were up in December. The Massachusetts Index, assessing business conditions within the Commonwealth, gained 2 points to 61.8, leaving it 5.5 points ahead of the same time last year.

The increase in the U.S. Index of national business conditions put that figure 7.5 points higher than its level of a year ago, but still short of the Massachusetts index. It marked the 80th consecutive month in which employers have been more optimistic about the Massachusetts economy than the national economy.

The Current Index, which assesses overall business conditions at the time of the survey, increased 2.2 points to 59.1, while the Future Index, measuring expectations for six months out, rose 2.5 points to 61.7. The future outlook was 5.5 points better than a year ago and higher than at any point since March 2015.

The sub-indices bearing on survey respondents’ own operations also strengthened considerably.

The Company Index, reflecting overall business conditions, rose 1.4 points to 60.9, while the Sales Index increased 3.2 points to 61.4. The Employment Index was the only indicator to lose ground, falling 0.2 points to 57.2.

The AIM survey found that nearly 38% of respondents reported adding staff during the past six months, while 19% reduced employment. Expectations for the next six months were stable, with 37% planning to hire and only 10% downsizing.

“One of the most positive results of the December survey is that business confidence is strengthening uniformly across almost every sector of the economy,” said Elliot Winer, chief economist at Winer Economic Consulting and a BEA member. “Employers both large and small, manufacturers and non-manufacturers, from the Pioneer Valley to Greater Boston, are more optimistic about their prospects than at any time since prior to the Great Recession.”

The BCI Manufacturing Index jumped 0.6 points during the month and 2.6 points for the year. The overall Business Confidence Index among non-manufacturers was 63.3 compared to 56.7 for manufacturing companies.

Companies in the eastern part of the Massachusetts were slightly more optimistic at 61.4 than those in the western part of the state at 57.6.

AIM President and CEO Richard Lord, also a BEA member, said employers appear to be encouraged by the prospect that Trump and a Republican Congress will be able to pass their tax and regulatory agenda.

At the same time, Lord said, there remains uncertainty about a possible repeal of federal healthcare reform and the future of international trade agreements that are critical to Massachusetts companies.

“The only certainty appears to be uncertainty for the next six months,” Lord said. “The key will be to ensure that any tax reductions and regulatory reforms made on the national level are not obviated by state measures intended to make Massachusetts a progressive model for the rest of the country.”