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For immediate release:  June 2, 2009

Massachusetts Business Confidence Up in May

The Associated Industries of Massachusetts Business Confidence Index recorded a solid 3.6-point gain in May to 39.0, its highest reading since November.  “This is the third consecutive monthly increase since February’s all-time low, each larger than the one before,” said Raymond G. Torto, Global Chief Economist at CB Richard Ellis Group, Inc. and Chair of AIM’s Board of Economic Advisors (BEA).  “Although the economy is still deep in recession, the ‘positive hints’ we saw in March, and the ‘bottoming out’ foreseen in April, have given way to more substantially improved confidence in May.” 

AIM’s Business Confidence Index, issued monthly since July 1991, hit a record low at 33.3 on its 100-point scale in February.  Its all-time high was 68.5, last reached in May 1998.  The May Index was down 10.4 points from May 2008, and 18.2 over two years.  “Compared to April, however, we see significant gains in every sub-index, along with the overall Business Confidence Index,” Torto noted.   “The key question for future months will be whether this positive trend can be sustained,” he concluded.

National, Future Indicators Lead Gains

Among the sub-indices, the U.S. Index, assessing business conditions prevailing nationally, led the way with a seven-point gain 34.4, while the Massachusetts Index of conditions within the Commonwealth added 3.1 to 33.1.  “Massachusetts went into recession later than the nation as a whole, but the recent New England Economic Partnership forecast shows a slightly deeper trough and a slower rebound here than nationally, because of our industry mix and demography,” said Professor Alan Clayton-Matthews of the McCormack Graduate School of Policy Studies, University of Massachusetts/Boston, a BEA member.  “This recession shapes up as worse for us than 2001-03, but not as bad as 1989-91 – and despite our delayed recovery, this one (unlike the last two) will probably not hit us very much harder than the rest of the country.”

The Current Index of conditions prevailing at the time of the survey rose three points from April’s record low to 33.1, off 16.5 from May 2008.  The Future Index of expected conditions six months ahead, meanwhile, gained 3.9 to 44.8, down 4.3 on the full year; it was up 8.8 from its bottom in February.  On a special question, 20% of survey respondents expected economic growth the resume nationally in the second half of 2009, and 40% in the first half of 2010.   “Again, these results are consistent with the NEEP forecast, which points to significant improvement in the economy from late 2009 and into 2010,” said Clayton-Matthews.  

Company Measures Improve; Manufacturing Lags

“The May survey results on company issues are all positive, though the numbers remain very low” said BEA member Donald J. Barry Jr., Senior Vice President at Citizens Bank in Boston. “The Company Index, which measures survey respondents’ overall confidence in the situations of their own operations, was up 2.5 points to 42.2 – not a strong number, but a third straight increase after six consecutive monthly declines.  The Sales Index added 3.5 to 40.1, and the Employment Index gained eight-tenths to 39.2. While very few firms are increasing their workforces, and many are still cutting back, we are hearing anecdotally about renewed ‘spot hiring’ to fill vacant and critically needed positions.”

Confidence in May was much weaker in manufacturing (35.1, +1.3), which is suffering badly in the worldwide recession, than among employers in other sectors (43.8, +5.8).  Employers of all sizes were in general agreement on most questions, with small firms significantly more negative than others about future Massachusetts conditions.  There was likewise little regional variation, as confidence grew in Greater Boston (+1.6 to 37.5) and elsewhere in the state (+4.0 to 38.8). 

Stability, Recovery Are Twin Priorities  

 “The May Business Confidence Index results show light at the end of the tunnel,” commented Richard C. Lord, AIM’s president and CEO, a BEA member, “but we are still in a dark part of the tunnel, and we must avoid pitfalls as we work our way out.”  The dangers ahead include continued fiscal stress, lagging recovery, and the threat of out-migration of educated, skilled workers if opportunities are lacking in Massachusetts.

“Decisive action to stabilize public finances, at both state and local levels, is essential to restoring business confidence, and policies that lay the groundwork for renewed business investment a job creation are equally important,” Lord said.  “Business conditions within the Commonwealth are seen as less favorable than those prevailing nationally for the first time since the start of 2008, and forecasts suggest that jobs will return more slowly than economic activity – those are the circumstances that could drive our most productive people, especially the younger ones, to seek employment elsewhere, permanently damaging our economy.  Policy makers must consider both the immediate crisis and our long-term prospects.”. 

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