MA Business Confidence Shows Economy on the Rebound

Friday, August 10, 2012

Ashley Klann, GoLocalWorcester Contributor

Associated Industries of Massachusetts (AIM) reports that the state is showing good signs of making an economic rebound, but the future is still uncertain. The non-profit group said in its report that the country's Congressional inactivity has only added to this doubt, but comparatively, the Mass. legislature has been keeping the state economy strong.

The group says that last month’s figures of business confidence show a positive move. AIM’s Business Confidence Index has been issued monthly for over 20 years , since 1991 under the oversight of the Board of Economic Advisors.

“This is a more immediate rebound than we saw in the midyear declines in 2010 and 2011, and the Index is above its reading of last July,” said Raymond G. Torto, chair of AIM’s Board of Economic Advisors.

AIM describes its work as nonpartisan work to promote the well-being of its members and their employees.

The Scale

AIM’s index rose 3.9 points in July to 52.2, recouping almost half of June’s large loss and moving back into positive territory, above 50 on its 100-point scale. Last July, the index was at 50.5.

One the Business Confidence Index, a score of 50 is neutral. The historical high was 68.5, a number reached in 1997 and 1998, and its all-time low was 33.3 in February 2009.

Torto, who is also the Global Chief Economist at CB Richard Ellis Group, Inc., said that while these figures are promising, there is still an uncertain future ahead.

Shaky Outlook

“The fluctuations in business confidence reflect a continuing high level of uncertainty in the economic outlook, which makes Massachusetts employers cautious about expectations, and reluctant to add to the workforces even when they are doing relatively well,” Torto said, adding that the sources of uncertainty are evident. He called the growth in the US economy ‘stuttering.’

The ‘Fiscal Cliff’

Torto said that this slow growth has been seen in export markets over a long period, and that elections are forcing the economy towards what he called the “fiscal cliff.”

“The news from the Eurozone is alternately hopeful and discouraging, with implications for trade and for the global financial system; and politically we are headlining into elections and rapidly approaching the so-called ‘fiscal cliff’ – the federal budget cuts and tax increases scheduled to take effect in 2013,” he said. “This represents an extraordinary range of major concerns that affect the future of every business, institution and household.”

Torto emphasized the amount of impact something like elections or legislation can have on the economy, as the mood of consumers and business owners changes.

Effects of MA Legislation

When comparing the state’s legislature to Congress, Richard C. Lord, AIM’s President and CEO said that it shows why the state’s credit rating is up while the country’s is down – while there have been positive measures on Beacon Hill, Congressional inaction is adding to the tone of uncertainty.

“Our Legislature has completed a very productive session: a balanced budget without new taxes, an unemployment insurance rate freeze, significant steps forward on K-12 education and the community colleges, a very positive energy measure, a jobs creation bill, and at the end, meaningful action to begin to control health care costs,” Lord said. “Congress, meanwhile, has been able to agree only to put off action on vital matters until after the election. The state’s credit rating is up, the country’s is down.”

Federal Budget Cuts to Come

Many key Mass economic sectors will be affected by federal budget cuts that will take place automatically in 2013 unless Congress acts, Lord noted. While Massachusetts is set to handle this cut, it will still greatly affect any federal employees in the state.

“We are not projected to feel the same impact as states with disproportionate numbers of federal employees, but we would face extreme disruption to key industries, on both the defense and the non-defense sides,” he said.

Massachusetts ranks fifth in Defense and Homeland Security contracts, with almost $14 billion in contracts, 2,500 contractors, and 130,000 jobs, according to AIM’s numbers.

The largest employment sector is health and education.

“The hardest-hit employment sector nationally would be research and development, which is the core of our economy on both sides of the defense/non-defense line. If uncertainty is our worst problem, Washington is only adding to it,” Lord said.