Mass. biz confidence drops for first time in 8 months

Massachusetts business confidence fell 2.2 points in April, the first drop since August.

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By State House News Service

After reaching a level of confidence in March not seen among Massachusetts businesses since 2004, employers in April took a slightly more dim view of the economy and their prospects, the Associated Industries of Massachusetts reported Tuesday.

AIM's Business Confidence Index dropped 2.2 points to 60.2 in April, the first month that confidence has declined since August, but still 4 points higher than a year ago.

The dip in business confidence came during a month in which the state's unemployment rate climbed to 3.6 percent and after the state economy had contracted at an annual rate of 0.5 percent in the first quarter.

"We should not be surprised to see confidence readings correct slightly after advancing six points since September," Raymond Torto, chair of AIM's Board of Economic Advisors, said in a statement. "It bears watching to determine whether the broad April decline becomes a trend as we move into the summer."

The Massachusetts Index, which assesses business conditions within the commonwealth, fell 0.4 points to 63.3, putting it 6 points higher than in April 2016. One economist suggested that Massachusetts could be beginning to feel the effects of a tight labor market exacerbated by the front-end of a wave of retiring Baby Boomers.

"The combination of a prolonged economic recovery and the demographics of skilled workers retiring with no one to replace them is creating an impediment to growth for Massachusetts employers," Barry Bluestone, professor of political economy at Northeastern University, said in a statement. "The shortage underscores once again the importance of creating an education and training system that responds to the demands of the economy."

A MassBenchmarks report published Friday by the UMass Donahue Institute with the Federal Reserve Bank of Boston found that while business and consumer confidence is relatively high in Massachusetts, the state economy is not far off from posting back-to-back quarterly contractions. Growth is expected at a "subdued pace" through September, with anticipated growth rates of 0.5 percent in the second quarter and 0.4 percent in the third quarter.

MassBenchmarks Executive Editor Robert Nakosteen described the possibility of a labor shortage in Massachusetts as "the real cautionary flag" since employers need skilled workers to grow.

Business views of the national economy dropped 2.7 points to 57.2, but April was the 85th consecutive month in which employers have been more optimistic about the Massachusetts economy than the national economy, according to AIM.

According to AIM, the decline in confidence among employers may reflect "growing concern among employers about the ability of the Trump Administration to deliver the many pro-growth policies it promised during the campaign."

In January, just before President Donald Trump took office, business confidence surged and AIM said businesses were encouraged that Trump would be able to pass a tax and regulatory agenda with a Republican-controlled Congress. But the health care reform legislation that was viewed as critical to comprehensive tax reform failed and the White House is now rolling out its early plans for tax reform.

The AIM index has been issued monthly since July 1991. It is presented on a 100-point scale, with a score of 50 being neutral. The all-time high of 68.5 was recorded in both 1997 and 1998, the group said, and its low was 33.3 in February 2009. The index has remained above 50 since October 2013.