Prospect of Soft Landing Helping to Lift Employer Confidence

AIM Survey: Employers Feel Better Than They Have Since February

AUG. 7, 2023…..Bay State businesses are feeling a summertime dash of sunshine.

A monthly survey of Massachusetts employers tilted into optimistic territory in July after two months of slightly pessimistic forecasts, reflecting a humming state economy and increasing projections of a “soft landing.”

The Associated Industries of Massachusetts said Monday that its business confidence index jumped to 52.5 in July, a 2.8-point monthly increase that crossed the dividing line of 50 that separates positive and negative outlooks.

“A strong job market, vibrant consumer spending and resurgent business investment continue to move the economy in a positive direction. The job market remains particularly strong, giving Americans money to spend: personal income, after taxes and adjusted for inflation, rose at a 2.5 percent rate in the second quarter,” Sara Johnson, chair of AIM’s Board of Economic Advisors, said in the new report.

The group’s business confidence index in July was the highest since February, when it reached 53.5, and the first time it was back in an optimistic range since April.

AIM said both the state and national economies “defied expectations of a recession in the face of 11 interest-rate increases by the Federal Reserve,” pointing to a 2.4 percent annual growth rate recorded nationally in the second quarter and a two-year low inflation rate of 2.97 percent recorded in June.

The Massachusetts unemployment rate fell to 2.6 percent in June, the lowest rate ever in records that date back to 1976.

Many employers in both the public and private sectors continue to struggle to fill open positions, a topic that has become a familiar one for policymakers. Gov. Maura Healey last week announced a new collective bargaining agreement with the MBTA’s largest employee union in a bid to attract and retain more workers, and in June she said $50 million is available in a Workforce Competitiveness Trust Fund to support training partners and companies in the life sciences, clean energy and advanced manufacturing sectors.

AIM CEO John Regan pointed to the Legislature’s overdue passage of a $56.2 billion fiscal year 2024 budget — which Healey must act on by Thursday — as a positive sign for employers, though he noted lawmakers still have not advanced a final tax relief package that has been discussed in some form for more than 18 months.

“AIM supports the version of tax reform passed by the House of Representatives, a version that would reduce the tax on long-term capital gains from 12 percent to 5 percent over two years and raise the threshold for the estate tax from $1 million to $2 million. Massachusetts is one of just 12 states with an estate tax,” Regan said in the report.

While AIM’s business confidence index improved over recent months, the July 2023 figure was 0.3 points lower than July 2022. A company index, reflecting how much confidence employers have in their own businesses, rose 1.7 points to 53.6 but ended July 3.1 points below where it stood one year ago.

“I think people are getting used to interest rates, so inquiries are picking up,” one technology sector employer wrote in AIM’s report. Another business in hospitality said it continues to see limited international travel, even though about 40 percent of its clients historically came from overseas.