1. Massachusetts Business Confidence Continued Climb in November

    The Associated Industries of Massachusetts Business Confidence Index gained 1.6 points in November to 44.9, its highest level since September 2008.  “The Index has risen in eight of the nine months since it bottomed out in February,” said André Mayer, Sr. Vice President-Communications & Research at AIM, who oversees the survey for the Board of Economic Advisors (BEA).  “The overall reading is creeping up towards 50, which is neutral on our 100-point scale.  The sales sub-index reached that level in November, and the indicators for company conditions and six-month prospects are getting close, so Massachusetts employers are seeing real and fairly steady improvement in the business climate.”

    AIM’s Business Confidence Index, issued monthly since July 1991, has ranged from a low of 33.3 (February 2009) to a high of 68.5 (in 1997 and 1998).  The November Index was up 3.1 points from a year before, but down 8.7 over two years and 14.6 over three years. 

     

    On the Way to Recovery?

    Most of the sub-indices based on selected questions or respondent characteristics rose in November along with the main Index.  The Current Index of conditions prevailing at the time of the survey added 1.4 to 40.7, while the Future Index of expected conditions six months ahead gained 1.6 to 49.0.  “The expectation of near neutral conditions six months out suggests something approaching normal business conditions by midyear 2010, which is generally in line with econometric forecasts,” said Professor Alan Clayton-Matthews of the School of Public Policy and Urban Affairs at Northeastern University, a BEA member.  “Because our state’s economy is heavily dependent on the production of investment goods and on product development, our recovery is likely to lag by a few months until robust consumer spending is clearly established nationally.”

     

    The Massachusetts Index of business conditions prevailing within the Commonwealth lost a half-point in November to 38.5, as the U.S. Index of national conditions held steady at 36.7.  “This marks the twenty-first time in the past 22 months that the state indicator has been stronger than its national counterpart,” noted Clayton-Matthews.  “The reality is that although Massachusetts went into recession later than the nation as a whole, we have been hit about as hard as many other states, and have benefited less from stimulus programs – but we have more experience than most in recovering from such severe downturns, so confidence in the resiliency of our economy is perhaps reasonable.”  

     

    Sales, Employment Gains Foreseen

     

    AIM Business Confidence Sub-Indices

     

     

     

     

     

    Index

    Nov-09

    Oct-09

    Monthly Change

    Nov-08

    Yearly Change

    Business Confidence

    44.9

    43.3

    1.6

    41.8

    3.1

    Company Index

    49.5

    47.4

    2.1

    46.1

    3.4

    Massachusetts Index

    38.5

    39.0

    -0.5

    37.1

    1.4

    U. S. Index

    36.7

    36.7

    0.0

    33.7

    3.0

    Current Index

    40.7

    39.3

    1.4

    41.0

    -0.3

    Future Index

    49.0

    47.4

    1.6

    42.8

    6.2

    Employment Index

    45.5

    43.6

    1.9

    45.7

    -0.2

    Manufacturing Index

    44.4

    42.2

    2.2

    40.9

    3.5

    Monthly and yearly changes are calculated using unrounded indices.

     “The November survey results reveal growing confidence among Massachusetts employers about their own companies’ situations and prospects,” said BEA member Sara L. Johnson, Managing Director of Global Macroeconomics at IHS Global Insight, Inc. of Lexington.  “The Company Index, which measures survey respondents’ overall confidence in the situations of their own operations, added 2.1 points to 49.5, and the Sales component actually topped 50 by rising 3.2 to 50.7.  The Employment Index was up 1.9 to 45.5, giving some hope that we are past the period of large net job losses.”  For the first time in a year, more respondents rated current conditions for their operations “good” (35%) than “bad” (22%).  Six-month expectations were positive for both sales (37% increase – 20% decrease) and employment (20% increase – 13% decrease).

     

    Confidence rose in November among both manufacturers (+2.2 to 44.4) and other employers (+1.5 to 45.9).  “Manufacturing faces a slow recovery, varying by specific industry, because consumer discretionary spending is unlikely to come back strong,” Johnson said.  “Exports will help, though the traditional export markets for Massachusetts companies – Canada, Western Europe, Japan – are also struggling to return to sustained expansion.” By size of company, medium-sized employers were more confident that others, and small employers the least confident.  Confidence was somewhat higher in Greater Boston (45.9, +2.6) than elsewhere in the state (43.2, -0.2), a weak pattern that has prevailed since August.  

     

    Good Business Climate Best Stimulus for Tricky Stretch 

     

    “There are, again, some positive signs in November’s Business Confidence Index results, but there are at least two reasons to be very cautious about how we read them,” commented Richard C. Lord, AIM’s president and CEO, a BEA member.  “For one thing, AIM members are far from persuaded that the recession is over – only 3% thought it was in November, compared to 4% in October, while the proportion choosing ’recovery is not in sight’ rose from 21% to 25%.  For another, the recovery phase of the business cycle has been a tricky one for Massachusetts in the past, because our economy has tended to come back slowly.”

     

    “What will really make a difference to our recovery at the state level, and especially to job creation in the private sector, is not stimulus spending by government, but the kind of stimulus that comes from fiscal stabilization, careful attention to employment costs, and improvements in the overall business climate that will make our state more attractive for investment and for entrepreneurial activity,” Lord said.

     

     

    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.  

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