Business confidence in Massachusetts falls despite signals of interest rate relief, index shows

Business confidence slipped toward pessimism last month, with employers concerned about sticky inflation and the Federal Reserve’s plans for rate cuts amid rising unemployment numbers, according to the Associated Industries of Massachusetts.

Confidence among the state’s employers slipped from 52 points in July to 51 points in August, down 1.4 points from the same period last year and “marginally optimistic but cautious,” AIM said in their latest Business Confidence Index report.

Sara Johnson, Chair of the AIM Board of Economic Advisors, said “the good news is that 12-month inflation, measured by the personal consumption deflator, held steady in July and consumer spending was robust.”

“At the same time, employers in Massachusetts and across the country have turned more cautious amid concerns about the slowing economy and federal tax, spending, and regulatory policies after the November elections,” she said.

Survey authors note the news comes as inflation remains high but lower than it’s been in years, while the labor market continues to cool. This could be a sign the Fed will follow through with plans announced by Chairman Jerome Powell to move forward with rate cuts.

“Inflation remained steady at 2.5 percent in July, paving the way for the Federal Reserve to reduce interest rates later this month. The labor market, meanwhile, continued to cool, driving the Massachusetts unemployment rate to its highest level in four years at 4.6 percent,” AIM wrote.

Just last month, Powell signaled that the time has come for the central bank to ease up on the gas.

“The time has come for policy to adjust,” Powell said in his keynote speech at the Fed’s annual economic conference in Jackson Hole, Wyoming. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

AIM’s business confidence index showed pessimistic feelings in July, when it fell to 49.8 points, and in September of 2023, when it was again at 49.8 points. Employers have otherwise been generally optimistic about the state of the economy in Massachusetts through the last year.

That’s not to say there aren’t pain points, according to Suzanne Dwyer, President of the Massachusetts Capital Resource Company and a member of AIM’s board of economic advisors. An employer’s feelings at the moment are entirely reflective of their industry, she said.

“The shifts in the economy appear to be segmenting business confidence by industry, geography and company size. Confidence among manufacturers, for example, continues to be weaker than the overall outlook, and layoffs in the technology sector have eroded confidence in that area as well,” Dwyer said.

AIM surveys more than 140 Bay State businesses to produce their monthly index, the first of which was published in July of 1991. According to AIM, business confidence hit historic highs in 1997 and 1998, with two months in either year showing 68.5% confidence, and hit a low in February of 2009, when it was 33.3%.

Herald wire services contributed to this report.