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For immediate release:     October 30, 2008

AIM’s Business Confidence Index Hits All-Time Low

The Associated Industries of Massachusetts Business Confidence Index fell to the lowest level in its 17-year history in October, losing 5.1 points to 41.4.   “This reading is even worse than the 41.5 we saw in December 1991, when we were in the depths of a severe recession,” said Raymond G. Torto, Global Chief Economist at CB Richard Ellis Group, Inc. and Chair of AIM’s Board of Economic Advisors (BEA).  “The tenth of a point difference is statistically insignificant, but this decline in confidence is driven by poor national conditions – not a state-specific meltdown as in ’91 – and respondents do not believe that we have bottomed out.”

The Index, based on a 100-point scale on which 50 is neutral, was down 13.8 points from October 2007.   All of the sub-indices based on selected questions or respondent characteristics were likewise off on the year, and all but one declined in October along with the main Index.

National Conditions Indicator Plummets

The U.S. Index of national conditions plunged 13.5 points in October to 28.6, the worst reading in its history. “The previous low was 35 in July, and the bottom in the last recession was 38.3 in October 2001,” said BEA member Sara L. Johnson, Managing Director of Global Macroeconomics at IHS Global Insight.   The Massachusetts Index of conditions within the Commonwealth was off 8.6 points to 34.3, also lower than any point in the last recession but higher than its levels in 1991-92.  “Only 3% of survey respondents called national conditions ‘good,’ compared to 68% ‘bad’,” Johnson noted, “and the Massachusetts results – 4% ‘good,’ 58% ‘bad’ – aren’t much better.”

Employers’ assessments of current conditions weakened in October, as the Current Index lost 2.7 points to 42.5, a level last seen in early 2003.   The future Index of prospects for six months ahead slumped 7.7 points to 40.5, the all-time lowest reading.  “Companies selling into the national market have been experiencing the effects of recession for some time, but now these effects are being felt here in Massachusetts, and in international markets as well, contributing to a sense that conditions will deteriorate further,” Johnson said.

Manufacturers, Other Employers Lose Confidence

Confidence fell in October among both manufacturers (-6.0 at 43.3) and other employers (-4.3 at 39.5).   “Rising exports had helped manufacturers offset weakening domestic demand, but now growth is slowing internationally, and the dollar is regaining strength,” said Alan Clayton-Matthews of the McCormack Graduate School of Policy Studies, University of Massachusetts/Boston, a BEA member.  Confidence levels were similar among employers in Greater Boston (41.1, down 2.7) and those elsewhere in the state (41.9, down 9.1). 

The Company Index assessing the situation of respondents’ own operations lost 3.2 point to 47.1, slipping below 50.   The Sales Index was off 3.5 to 44.6, while the Employment Index was the sole gainer among the sub-indices, edging up two-tenths to 46.6.  “Each of these indicators is at a level typical of past recessions,” said Clayton-Matthews, “and there is little comfort to be found even in the employment numbers, because survey respondents foresee a significant weakening of the labor market in the coming six months.”  Small employers, he noted, were particularly pessimistic about future business conditions.

Recession Should Focus Attention on Business Climate 

“The national recession is clearly catching up with Massachusetts, and everyone who remembers the last recession, earlier in this decade, knows that going in late does not mean we won’t experience a severe and prolonged downturn,” said Richard C. Lord, President and CEO of AIM and a BEA member.   “While there are some reasons to believe that we are better positioned to weather the storm this time, our state’s high cost structure and difficult business climate become increasingly disadvantageous in a bad economy,” he added.

“Public officials will have their hands full managing government operations in a time of declining revenues, and we support their efforts to achieve greater efficiencies,” said Lord.   “At the same time, however, we all know that the private economy provides the resources that sustain the public sector, which means that a favorable business climate must be the first priority for survival and eventual 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
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

FOR MORE INFORMATION CONTACT:                   
Brian R. Gilmore, Executive Vice President - Public Affairs
Phone: (617) 262-1180
E-mail:   bgilmore@aimnet.org
Website: www.aimnet.org