Business confidence sinks in August as COVID uncertainty builds
photo/GRANT WELKER
The Parkway Diner on Shrewsbury Street in Worcester created its own outdoor seating area in the first few months after restaurants were allowed to reopen in June 2020.
Having risen to levels not seen since before the COVID-19 pandemic in June and July, business confidence took a step back in August as Massachusetts employers dealt with waves of Delta variant cases, worker shortages and supply chain disruptions, Associated Industries of Massachusetts said.
On the zero-to-100 scale of AIM's Business Confidence Index, the outlook among Massachusetts businesses dipped from 65.6 in July to 62 in August, putting employer sentiment just below its mark in January 2020 (62.3), just before the coronavirus sent the index spiraling to a low of 38.4 in April 2020. Still, last month's confidence level was 15.7 points higher than it was in August 2020.
"The August confidence numbers reflect the fact that employers are balancing a multitude of uncertainties, ranging from decisions about whether or not to require employees to be vaccinated to finding qualified workers," Edward Pendergast, managing director of Dunn Rush & Co. and a member of AIM's Board of Economic Advisors, said. "The central uncertainty, of course, remains the future course of the pandemic itself."
The Delta variant has changed much of the calculus around returning to pre-pandemic habits for workers and consumers. Massachusetts has been averaging more than 1,000 new cases of COVID-19 each day and about 40 percent of the state's weekly cases have come in people already vaccinated against the disease.
Some companies -- like AIM member Google, which has almost 2,000 employees in Massachusetts, and insurance giant John Hancock -- have decided to further delay their office reopenings as the Delta variant drives yet another wave of COVID-19 cases even as a majority of the population is vaccinated against the coronavirus. Google put its September reopening off until mid-October and John Hancock is not requiring employees to return to the office until January.
"Everyone hopes that the effects of the Delta variant will subside before the economy loses any of the momentum it has established since the beginning of 2021," AIM President and CEO John Regan said.
On Friday morning, former FDA Commissioner Scott Gottlieb told CNBC's Squawk Box that he senses a false perception that "we're sort of through this Delta wave here in the Northeast" because case counts have come back down in some places like the metro New York region.
"I don't think that that was the true Delta wave. I think that that was a Delta warning," Gottlieb, who has advised Gov. Charlie Baker during the pandemic, said. "I think our true Delta wave is going start to build after Labor Day here in the Northeast and the northern part of the country ... and so I do think that Labor Day and the return to school are going to be incubators for spread that's going to lead to that Delta wave."
Each indicator that makes up the confidence index lost ground in August after every single indicator had climbed during July, AIM said. The Current Index, which gauges overall business conditions at the time the survey was taken, lost 3.4 points last month -- erasing the 3.3-point gain recorded in July and falling to 63.2 -- while the Future Index that measures how employers feel about the economy six months out dropped 3.9 points to 60.8.
The Massachusetts Index, which assesses business conditions only within the state, declined by 1.7 points to 64.3 in August. Meanwhile, the US Index measuring conditions nationally, which has gained 19.3 points over the last year, dipped 1.3 points to 57.7 last month.
For the first time in 2021, the confidence among Massachusetts manufacturers took a hit in August, shedding 4.2 points. AIM said manufacturers are facing "the twin challenges of surging prices and shortages of key raw materials."
"Business owners and managers remain solidly optimistic overall, but express growing concern as COVID-19 cases increase both in Massachusetts and globally," Sara Johnson, chair of the AIM Board of Economic Advisors and executive director of global economics at IHS Markit, said. "Everyone from manufacturers to retailers is struggling to provide product amid renewed pandemic containment measures and critical shortages of labor and materials."
In response to AIM's business confidence survey, one unnamed employer wrote that supply chain problems were "killing" the ability to drive business.
"Trying to get key supplies on a container is impossible so our costs keep going up due to having to airfreight parts in," the employer wrote.
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