For Immediate Release:              February 2, 2010 

Massachusetts Business Confidence Barely Up in January

The Associated Industries of Massachusetts Business Confidence Index edged up a tenth of a point in January to 45.8 – a statistically insignificant rise that barely extended its string of gains to seven consecutive months.  “This is a reminder that the economy, though it has improved after suffering a terrific trauma a year ago, is still far from strong,” said Raymond G. Torto, Global Chief Economist at CB Richard Ellis Group, Inc. and Chair of AIM's Board of Economic Advisors (BEA).  “We’ve been stabilized, and moved from the emergency room and intensive care to the recovery floor, but we’re still in the hospital.” 

The Index was up 9.1 points from its reading in January 2009, the month before it reached its all-time low of 33.3.  Its historical high was 68.5, attained in 1997 and 1998.  AIM’s Business Confidence Index has been issued monthly since July 1991.  

Normal Conditions Seen for Q3

Most of the sub-indices based on selected questions or respondent characteristics rose or fell fractionally in January.  The Current Index of conditions prevailing at the time of the survey lost a tenth to 41.6, while the Future Index of expected conditions six months ahead added three-tenths to 49.9.  “We continue to see expectations of more or less normal business conditions by the third quarter of 2010, but not before,” said Professor Alan Clayton-Matthews of the School of Public Policy and Urban Affairs at Northeastern University, a BEA member.  “This is consistent with econometric forecasts that point to relatively slow economic growth, and marginal jobs losses, through the first half, followed by accelerating gains.”

The Massachusetts Index of business conditions prevailing within the Commonwealth lost eight-tenths of a point in January to 40.7, as the U.S. Index of national conditions gained 1.5 to 40.5.  “The state indicator has been stronger than its national counterpart quite consistently over the past two years, although the gap is closing,” noted Clayton-Matthews.   “In contrast to the two previous cycles, Massachusetts has experienced a milder recession than the nation as a whole."  Our recovery is likely to be a bit slower than the nation’s, but we can build on strengths in health care, knowledge-based business services, and some fields of manufacturing. ”  

Sales, Employment Indices Stronger

The Company Index, which measures survey respondents’ overall confidence in the situations of their own operations, regained the three-tenths of a point it lost in December, returning to 49.5.  The Sales Index rose 1.6 to 51.3, and the Employment Index added nine-tenths to 41.6.  “The exceptionally strong growth and surging productivity that marked the fourth quarter of 2009, which resulted in part from stimulus programs, cannot be sustained into 2010,” said BEA member Sara L. Johnson, Managing Director of Global Macroeconomics at IHS Global Insight, Inc. of Lexington.  “Companies are facing up to a lackluster recovery that limits their pricing power, coupled with upward pressure from commodity prices; but growth is likely to be strong enough to begin driving improvement in the employment situation fairly soon.”

Confidence was off slightly in January among manufacturers (-0.8 to 48.7) but they remained more positive than other employers (+0.3 to 41.9).  “Massachusetts merchandise exports began to rebound in the fourth quarter, no doubt contributing to rising confidence in the manufacturing sector,” Johnson said.  “The most successful exporters are likely to be companies selling to the emerging economies, particularly in Asia, that will lead the way in this ‘two-speed’ recovery.”  Exports will help, though the traditional export markets for Massachusetts companies – Canada, Western Europe, Japan – are also struggling to return to sustained expansion.” Confidence was somewhat higher in January in Greater Boston (47.3, +3.3) than elsewhere in the state (43.8, -4.3), a reversal of December’s results.  

Recovery Needs Emerging and Established Industries 

“January’s Business Confidence Index results remind us that if 2009 was the year we averted a total economic meltdown, 2010 must be a time to rebuild the strength of our economy,” commented Richard C. Lord, AIM’s president and CEO, a BEA member.  “Here in Massachusetts we will rebuild, as we have done before, both by fostering new industries and by renewing the vitality of our existing industrial base.”

“These two components of recovery are not in conflict,” Lord went on, pointing to a recent study by the University of Massachusetts for Governor Patrick’s Information Technology Collaborative, which found that 70% of IT executives believe Massachusetts must address its cost of doing business – corporate taxes, unemployment insurance, workers compensation – to be competitive.  “Business costs matter just as much in the ‘new economy’ as they do in the old, and addressing these costs remains a key to a successful and timely recovery,” Lord concluded. 

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.  

Media Contacts:
Raymond G. Torto, Ph.D., CB Richard Ellis Group, Inc. (617) 912-5225
Fred Breimyer, Regional Economist, FDIC (781) 794-5675
Sara L. Johnson, Managing Director of Global Macroeconomics, IHS Global Insight (781) 301-9115
Alan Clayton-Matthews, Ph.D., School of Public Policy & Urban Affairs, Northeastern University (617) 373-2909
Carol McMullen, President, Wealth Management, Eastern Bank (617) 897-1107
Elliot Winer, Economist (978) 443-3130
Richard C.  Lord, President, Associated Industries of Massachusetts (617) 262-1180
André Mayer, Sr. Vice President-Communications & Research, Associated Industries of Massachusetts (617) 262-1180
Brian R. Gilmore, Executive Vice President-Public Affairs, Associated Industries of Massachusetts (617) 262-1180