AIM Business Confidence Index Off Again in August

The Associated Industries of Massachusetts Business Confidence Index lost eight-tenths of a point in August to 47.7, its second consecutive monthly decline. Gains in 14 of 16 months after its all-time low (33.3) in February 2009 had brought the Index above 50 - positive ground on its 100-point scale - in May and June. "This is the first time we have had back-to-back drops since the recession bottomed out,"  said Raymond G. Torto, Global Chief Economist at CB Richard Ellis Group, Inc. and Chair of AIM's Board of Economic Advisors (BEA).  "Weakening business and consumer confidence, along with downward revisions of second quarter growth estimates and of expectations for the third quarter, all point to a loss of momentum in the recovery," Torto noted, "and Massachusetts employers are clearly concerned about the national economy."

"But the outlook is cloudy, not stormy," Torto added. "Survey respondents foresee slight improvement over the six months ahead, rather than a 'double dip.' They remain mildly positive about their own companies' situations, and they rate economic conditions in Massachusetts better than the national climate."

The AIM Index was up 7.1 points from its level of August 2009, and 1.2 over two years. The highest reading in its nineteen-year history was 68.5, attained on two occasions in 1997-98.

Massachusetts Seen Outperforming Nation

The Massachusetts Index of conditions within the Commonwealth was the only component recording a substantial gain in August, adding 1.9 points to 43.6. The U.S. Index of national conditions lost 1.3 points to 37.0. For the year, the state indicator was up 8.6, its national counterpart up only 2.5 points. "Massachusetts fared better than the nation as a whole during the recession, largely because of a favorable industry mix," said Professor Alan Clayton-Matthews of the School of Public Policy and Urban Affairs at Northeastern University, a BEA member. "We have been outperforming the nation in the recovery, as measured by output, income, spending, and employment growth."

The Current Index, assessing overall conditions at the time of the survey, was off two points in August to 47.1, while the Future Index of prospects for six months ahead edged up three-tenths to 48.4. In the past year, the Current Index has gained 10.5 points, the Future Index 2.5. "Future expectations took a big hit in July, but stabilized in August," said Clayton-Matthews. "Employers foresee marginal improvement over the next six months, not a new downturn."

Small Employers Lag in Confidence

The sub-indices relating to respondents' own operations all lost about two points in August, but remained above 50. The broadest of them, the Company Index, was off 2.3 to 52.8; the Sales Index also lost 2.3 to 52.1; and the Employment Index fell 2.0 to 51.7. "Larger employers were more positive than smaller ones across the board," noted BEA member Sara L. Johnson, Managing Director of Global Macroeconomics at IHS Global Insight, Inc. "Among large employers, 44% rated current condition for their companies "good," compared to 13% "bad"; for small employers, the figures were 25% good, 39% bad."

There was little difference in confidence levels between employers in Greater Boston (47.4, -0.4) and those elsewhere in the state (48.3, - 1.2). Manufacturers (50.7, -1.8) remained more confident than employers in other sectors (44.9, +0.7), although the gap narrowed. "The Massachusetts manufacturing sector has been benefiting from increased business investment domestically, and from export sales, but slow growth in its established European markets is a concern," said Johnson.


Small Business Confidence a Key Issue
Richard C. Lord, President and CEO of AIM and a BEA member, pointed out that AIM members had been skeptical of the strength of the economic recovery even in May and June, when the Business Confidence Index was above 50 and climbing. "We always knew that there would be a long, bumpy road back to prosperity," he said, adding, "If there is a surprise here, it may be that Massachusetts is making relatively good progress not only in our survey, but by other indicators as well."

Low confidence among small businesses is, however, a serious problem, Lord said. "Small employers are the most anxious to see a return to normal business conditions, because they tend to be the least able to wait out a slow recovery," he noted. "The decline in overall business confidence in July and August is largely a result of their concern - and we certainly need to have their entrepreneurial energy at full force if we're going to have a strong recovery with sustained job creation."

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, Chief Economist for the Northeast Economic Analysis Group LLC. (978)443-3130
Richard C. Lord, President, Associated Industries of Massachusetts (617) 262-1180
Andre 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