AIM Business Confidence Index Plunges

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The Associated Industries of Massachusetts (AIM) Business Confidence Index dropped 8.5 points in June to 48.3, its lowest reading since last October. Although the loss is the second-largest in the Index's 21-year history, economists say it isn't surprising.

"The economy is obviously in much better shape than it was three years ago, but it remains fragile and employers are very aware of threats and uncertainties," said Raymond G. Torto, global chief economist at CB Richard Ellis Group Inc. and chair of AIM's Board of Economic Advisors (BEA). "In June, they heard about financial storm clouds over Europe, a slowdown in China, and here in the U.S., disappointing reports on employment, industrial production and retail sales. We're heading into elections – more uncertainty – and the fiscal cliff is getting closer every month. The road to recovery is a bumpy one."

The AIM Index, calculated on a 100-point scale, is off 1.7 points over one year and 5.4 over two years, but up 20.1 compared to June 2009. A reading above 50 is positive, while below is negative.

Along with the main index, sub-indices also fell in June. The Current Index, which assesses overall business conditions at the time of the survey, was off 6.1 points to 48.7, while the Future Index that looks six months into the future, lost 10.8, to 47.9.

"It appears that respondents are fearful that the deteriorating Eurozone situation, highlighted by the need to recapitalize Spanish banks, will have repercussions in global financial markets and the global economy," said Sara L. Johnson, senior research director of global economics at IHS Global Insight Inc., a BEA member.

The Massachusetts Index of conditions within the commonwealth was down 7.9 points to 47.6, and the U.S. Index of national conditions had a similar loss to 40.6, which are comparable to last fall, Johnson said. The employment index also turned negative, falling below 50 for the first time since May 2010 to 49.3.