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For immediate release: September 8, 2009

State Business Confidence Edged Up Again in August

The Associated Industries of Massachusetts Business Confidence Index rose a half-point in August to 40.6, 7.3 points above its all-time low in February. “This is the fifth gain in six months, reflecting slow but fairly steady improvement in employers’ assessment of the overall economic climate,” said Raymond G. Torto, Global Chief Economist at CB Richard Ellis Group, Inc. and Chair of AIM's Board of Economic Advisors (BEA). “Business conditions continue to be challenging, however, and respondents to our survey expect that they will remain so into 2010.” 

The AIM Index, based on a 100-point scale with 50 as neutral, was down 6.5 points from August 2008, and 15.6 over two years.  The highest reading in its eighteen-year history was 68.5, attained on two occasions in 1997-98.   

State Conditions Still Challenging

The Current Index, assessing overall conditions at the time of the survey, lost 6.6 points in August to 36.6, erasing two-thirds of July’s gain, while the Future Index of prospects for six months ahead held steady at 44.5.  “The apparent sharp improvement in current conditions in July is now revealed as an aberration, but the trend line is still tilted upward,” observed Fred Breimyer, Regional Economist for the Federal Deposit Insurance Corporation and a BEA member.  "The halting progress of six-month expectations suggests, however, that no strong recovery is in prospect for the immediate future.”

The Massachusetts Index of conditions within the Commonwealth was off 1.4 to 35.0, breaking a string of four consecutive gains.  The U.S. Index of national conditions shaded off a tenth to 34.5.  “Survey respondents are very slightly more positive – more accurately, less negative – about conditions in Massachusetts than about those prevailing nationally, both currently and prospectively,” Breimyer noted.  “If the state’s economy can at least keep pace with the nation’s through the recession and recovery, it will suffer less lasting damage than if it lags behind as it did in recent past cycles.” 

Companies More Hopeful About Hiring

The Company Index, the broadest of the sub-indices relating to respondents' own operations, was up 1.8 points in August to 45.0.  The Sales Index added 1.2 points to 43.0, and the Employment Index leapt 5.8 to 43.5.  “Like the main index, the Company Index has moved up in five of the past six months,” said BEA member Sara L. Johnson, Managing Director of Global Macroeconomics at IHS Global Insight.   “Despite difficult conditions, Massachusetts employers clearly feel more positive about their own operations – which allows them to begin to contemplate new hiring”, she added.

August confidence levels remained closely balanced in Greater Boston (41.8) and elsewhere in the state (39.0), and between manufacturers (39.5) and other employers (42.1).  “Although there have been some positive signs for manufacturers, including renewed growth in several key export markets, sales have yet to respond in most industries,” Johnson said.  Larger employers were more positive than smaller ones on all questions.  

Leadership Required on Government Reform, Economic Recovery 

The course of business confidence over the first eight months of 2009 points to the dual nature of public leadership, commented Richard C. Lord, President and CEO of AIM and a BEA member.  “At the start of the year, with the national government in transition, confidence was low and falling, but once the new administration came in and began to act, confidence stabilized and began to improve,” he said.  “That projection of decisive leadership is vital, but as we now see, it must be backed up by well-designed, consistent, effective policies and programs if we are to return our economy to a path of growth.”

With regards to the role of state government, Lord went on, the same two aspects of leadership are necessary.  “We need to stabilize state and local government finances, and restore confidence in its integrity, efficiency, and effectiveness,” he said.  “At the same time, we must take steps to improve the business climate of the Commonwealth, and lay new foundations for a robust economic recovery.”  

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., Torto, 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., McCormack Graduate School of Policy Studies, UMass/Boston (617) 512-6224
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)