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For immediate release:   January 6, 2009

AIM’s December Business Index Plumbs New Depths

The Associated Industries of Massachusetts Business Confidence Index closed out 2008 at its all-time low, plunging 5.5 points to 36.3 in December as Bay State employers faced a severe and protracted economic downturn.  "These are the worst results we have seen in the 17-year history of the AIM Index, because this is the worst economy in much longer than that," said Raymond G. Torto, Global Chief Economist at CB Richard Ellis Group, Inc. and Chair of AIM's Board of Economic Advisors (BEA).  "Conditions within Massachusetts are not as bad at this point as they were in 1991-92, but in a larger context the national and global economic crisis is unprecedented in the post-World War II era."

  “AIM’s Business Confidence Index was prescient in charting the development of the recession over the course of 2008, weakening at the start of the year and negative – below 50 – by March, when the state’s economy was still growing,” Torto noted.  “The rapid deterioration we are now experiencing in the ‘real economy’ was foreshadowed by, and to a considerable extent driven by, declines in business confidence and consumer confidence.”

The Index, based on a 100-point scale on which 50 is neutral, was down 17.2 points from December 2007.  Its previous lows were 41.4 in October 2008, and 41.5 in December 1991. All of the sub-indices based on selected questions or respondent characteristics were down on the month and the year, and all but one reached a record low.  

National, State Conditions Seen Poor

The one component that did not bottom out in December was the Massachusetts Index of conditions within the Commonwealth, which lost 4.6 points to 32.5 but remained well above its levels in 1991-92, when it dipped as low as 23.2.   The U.S. Index of national conditions fell 7.1 to 26.6 – more than 11 points below its worst showing in the last recession (38.3 in October 2001). “The state’s economy managed to sustain some growth through the first three quarters of the year, but there is no doubt that we are now following the nation into recession," said Alan Clayton-Matthews of the McCormack Graduate School of Policy Studies, University of Massachusetts/Boston, a BEA member.  “Still, survey respondents were slightly less negative about current and prospective business conditions in Massachusetts than about those prevailing nationally.”

The Current Index, assessing overall conditions at the time of the survey, slumped 6.1 points in December to 34.9, well below its previous low of 34.9 in January 1992, while the Future Index of prospects for six months ahead lost 5.1 to 37.7 – also a new low.  “The results of the AIM index, which measures business sentiment, are generally consistent with econometric forecasts: the recession may bottom out by mid-2009, but by no means will it be over,” said Clayton-Matthews.

 Employers Face Uncertainty

All of the sub-indices relating to respondents' own operations fell to record lows in December.  The general Company Index was off 5.6 to 40.5, the Sales Index lost 7.4 at 35.7, and the Employment Index dropped 5.5 to 40.2.  All were well below their previous bottoms in August-September 2001.  “Employers tend to be much more confident about their own operations than about the economy as a whole,” commented BEA member Sara L. Johnson, Managing Director of Global Macroeconomics at IHS Global Insight.  “These low numbers point to an unusually high degree of uncertainty, and concerns about the implications of an extended downturn.”

December confidence levels were similar in Greater Boston (36.1) and elsewhere in the state (36.7), and among manufacturers (35.3) and other employers (37.8).  "The state’s manufacturing sector achieved strong export growth earlier in the year, but now the recession has become international, and global trade may shrink in 2009 for the first time since 1982,” said Johnson.  There was little difference in responses by size of company, except that small employers were more negative than others about business conditions within Massachusetts.

 Act Short-Term, But Think Long-Term 

"A recession, especially one as serious as this appears to be, poses severe challenges for policymakers as it does for employers," said Richard C. Lord, President and CEO of AIM and a BEA member.  "At the state level, lacking the tools to address short-term economic trends themselves, leaders naturally tend to be preoccupied with responding to the immediate fiscal crisis – but at the same time they must be aware that the choices they make do have implications for the long-term economic health of the Commonwealth – and may affect the decisions of businesses as they respond to the current crisis.”

“The business community certainly supports the efforts of state leaders to achieve greater efficiencies and stabilize government finances; at the same time, we see hopeful indications that they are looking ahead to position our Commonwealth for recovery,” Lord said.  “Beyond the struggle in the budget process to protect key investments in infrastructure, health, education, and workforce development that are the foundations of our economy, we are pleased to note a real concern for maintaining and improving our state’s business climate and overall competitiveness going forward.” 

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
Donald J. Barry, Jr., Sr. Vice President, Citizens Bank, (617) 725-5810
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
Richard C.  Lord, President, Associated Industries of Massachusetts, (617) 262-1180