AIM Business Confidence Index Stable But Low in November

Published on Tuesday, December 02, 2008

The Associated Industries of Massachusetts Business Confidence Index stabilized in November, edging up four tenths of a point to 41.8 from its all-time low in October. “Massachusetts employers were slightly less negative about general business conditions in the state and nation, and about future trends, than they were in October," said Raymond G. Torto, Global Chief Economist at CB Richard Ellis Group, Inc. and Chair of AIM’s Board of Economic Advisors (BEA). But, he added, “they were even more concerned about prospects for their own operations, with small businesses especially pessimistic on almost every question on the AIM survey.”

The Index, based on a 100-point scale on which 50 is neutral, was down 11.8 points from November 2007. The survey was completed before President-elect Obama designated his economic leadership team, which has generally been well received by the business community at large.

Future Indicator Strengthens

The U.S. Index of national conditions, which plunged 13.5 points in October, regained 5.1 in November to 33.7 – “but this is still the second-lowest monthly reading in the Index’s 17-year history, which covers two recessions before the present one,” noted Fred Breimyer, Regional Economist at the FDIC and a BEA member. The Massachusetts Index of conditions within the Commonwealth recouped a similar proportion of its October loss, rising 2.8 points to 37.1.

Employers’ assessments of current conditions weakened in November for the fifth time in six months as the Current Index lost 1.5 points to 41.0, a clearly recessionary level. The Future Index of prospects for six months ahead, by contrast, added 2.3 points to 42.8, rising from October’s all-time low. “We shouldn’t read too much into this result,” said Breimyer, “but the small rise in the Future Index, and the expectation that conditions may be a bit better in six months, are certainly hopeful signs.”

Small Businesses, Manufacturers More Pessimistic as Sales Slump

The Company Index assessing the situation of respondents’ own operations dropped a point to 46.1, continuing below 50. The Employment Index lost nine-tenths to 45.7, while the Sales Index was off 1.3 at 43.3, its lowest reading ever. “Obviously many employers are struggling, and survey respondents actually expect conditions for their own companies to worsen over the next six months,” said BEA member Donald J. Barry, Jr., Sr. Vice President, Citizens Bank. “Also notable is the continuing pessimism of the small business sector, where two-thirds rate state and national conditions ‘bad,’ and 61% have experienced declining sales.”

Confidence weakened in November among manufacturers (-2.4 to 40.3) while rising among other employers (+3.1 to 42.6). By geography, the confidence level hit an all-time low in Greater Boston (-2.0 to 39.1) but rose from October’s nadir in the rest of the state (+3.8 to 45.7). “Most manufacturers [51%] report lower sales, and the sector is increasingly pessimistic about the future,” noted Barry. “Even more striking, however, is the continuing pessimism of the small business sector, where two-thirds rate state and national conditions ‘bad,’ and 61% have experienced declining sales.”

Beacon Hill Not Yet Focused on Economy

“No one doubts that Massachusetts is now affected by the national recession, or that conditions here will get worse before they get better,” said Richard C. Lord, President and CEO of AIM and a BEA member. “The good news, at the federal level, is that the current administration and the Congress have begun to act on remedies, and the incoming administration has assembled an experienced and highly credible economic team.”

By contrast, Lord said, Beacon Hill has yet to respond effectively to conditions in the broader economy. “Of course state government has much less economic leverage, and confronts much more serious fiscal constraints,” he acknowledged, “but in times such as these it too should be concerned with the viability of local industries and the burdens placed on consumers.” Such recent actions as the imposition of a costly and impracticable data security regime and the diversion of resources from the Workforce Training Fund are, Lord said, “exactly the kinds of things the state should not be doing right now.”

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