Sara Johnson (left) and Brooke Thomson
Updated: September 30, 2024
Opinion
Viewpoint: Interest rate reduction signals shift in post-COVID economy
By Sara Johnson and Brooke Thomson
Uncertainty is the calling card of an economy in transition. There is plenty of uncertainty among Massachusetts employers this year as the Federal Reserve has attempted to thread the needle by moderating inflation without triggering a recession.
That’s the primary reason confidence among Massachusetts employers, measured by the Associated Industries of Massachusetts Business Confidence Index (BCI), has been see-sawing near the border of optimism and pessimism.
AIM’s statewide index stood at 51.0 in August on a 100-point scale, meaning employers remain marginally optimistic but cautious as the economy reaches inflection points on employment, output, and other key measures. The reading was 1.4 points lower a year ago.
The outlook has been more subdued in Central Mass. The Central Mass. BCI conducted by AIM and the Worcester Regional Chamber of Commerce fell to 44.6 in August, its lowest reading since the index was developed two years ago. We need to be cautious about reading too much into a single month, but the average confidence readings in Worcester County dropped from 50.1 in 2023 to 48.6 in the first eight months of 2024.
The U.S. and Massachusetts economies are shifting from the post-COVID period of rising prices, a white-hot employment market, and giddy consumers to one of slowing growth and rising unemployment. The defining confirmation of the change came when the Federal Reserve started the process of reducing interest rates with a half-percentage-point cut announced on Sept. 18.
The good news is 12-month inflation, measured by the consumer price index, eased to 2.5% in August. Yet, employers are more cautious amid concerns about the slowing economy and potential changes in tax, spending, and regulatory policies after the November elections.
The confidence gap between Central Mass. and the commonwealth as a whole may be partially due to a survey sample skewing toward manufacturing companies in Worcester County, who have been far less bullish in the face of high interest rates and supply chain issues.
“We need to find ways to assist the state to spread opportunities outside of Greater Boston region,” one Worcester County employer wrote in the AIM survey used to develop BCI. “While the lack of employees in Cambridge research can lead to higher salaries, there are plenty of opportunities outside of Boston if we had targeted education and better high-speed connections.”
Businesses must keep policymakers attuned to challenges, along with the opportunities throughout the state.
Sara Johnson is chair of the Associated Industries of Massachusetts Board of Economic Advisors. Brooke Thomson is AIM president & CEO.
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