Massachusetts employers are as optimistic as they have been all year about the overall economy and prospects for their own businesses.
The Associated Industries of Massachusetts Business Confidence Index (BCI) broke a two-month slide in September, rising 1.2 points to 62.4. The reading equaled its high for 2017 and was 6.5 points better than a year ago.
Employer confidence has moved in a narrow range so far in 2017 as employers appear bullish about the growth prospects of their companies. The September uptick was driven in part by a 5.7-point surge in the sales index, which is often a leading indicator of increased business activity.
“The Index was also taken prior to the announcement of an effort by Congressional Republicans and the White House to significantly reduce corporate taxes, a move that enjoys broad support among employers,” said Raymond G. Torto, Chair of AIM’s Board of Economic Advisors (BEA) and Lecturer, Harvard Graduate School of Design.
“The prospect of tax reform and tax simplification is likely to buoy employer sentiment through the end of the year.”
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.
Constituent Indicators
The constituent indicators that make up the overall Business Confidence Index were generally higher during September.
The Massachusetts Index, assessing business conditions within the commonwealth, rose 2.2 points to 65.4, a reading that was 8.4 points higher than in September 2016.
The U.S. Index of national business conditions dropped 0.4 points to 59.8 after surging more than 10 points during the previous 12 months. September marked the 90th 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 1.6 points to 62.9 while the Future Index, measuring expectations for six months out, rose 0.7 points to 61.29 The Future Index ended the month 5.9 points higher than a year ago.
Operational Views
The Company Index, reflecting overall business conditions, gained 1.4 points to 62.3. The employment Index fell 2.2 points to 55.8, continuing an up-and-down pattern within the mid-50s on the 100-point scale.
“The Massachusetts economy continues to maintain a steady recovery, with employers adding 10,800 jobs during August and the state jobless rate declining to 4.2 percent,” said Elmore Alexander, Dean, Ricciardi College of Business, Bridgewater State University, and a BEA member.
“The surge in the AIM Sales and Future indices suggests that business activity may actually accelerate in coming months, so the primary challenge for employers will remain hiring and retaining skilled workers in a tight labor market.”
Massachusetts Concerns
AIM President and CEO Richard C. Lord, a BEA member, said employers generally support federal initiatives to reduce business taxes, but also remain concerned about the potential effect those reductions might have on the deficit.
It is ironic, Lord said, that the proposed Republican tax plan would lower levies for subchapter S corporations and other small pass-through businesses, while Massachusetts voters may be voting on a surtax next year on those same companies.
“Subchapter s corporations and other companies that pay taxes on the individual level are generally small to medium-sized enterprises that form the heart of the Massachusetts economy. What a shame it would be if the federal government were to help these companies while Massachusetts penalizes them,” he said.
The monthly Business Confidence Index, initiated by AIM’s Board of Economic Advisors in July 1991, is based on a survey of AIM member companies across Massachusetts, asking questions about current and prospective business conditions in the state and nation, as well as for respondents’ own operations. On the Index’s 100-point scale, a reading above 50 indicates that the state’s employer community is predominantly optimistic, while a reading below 50 points to a negative assessment of business conditions. A number of component sub-indices are derived by analyzing responses to selected questions or those of particular groups of respondents.
