First impressions indicate an interesting year

LEE — How do Massachusetts employers view the economy now that we’re well into the first quarter of 2023?

The answer to that question has implications for everyone in Berkshire County. Confident employers hire workers, expand into new markets and invest in capital equipment.

Patricia Begrowicz

Pessimistic employers batten down the hatches, hold onto capital and closely manage their payrolls.

The best real-time measure of employer sentiment comes from the monthly Associated Industries of Massachusetts Business Confidence Index. AIM, the statewide business association where I serve as board chair, surveys 150 Massachusetts employers from all sectors of the economy and measures their level of confidence on a 100-point scale. Index readings of more than 50 suggest optimism; less than 50 indicates a bearish outlook.

The January BCI shows Massachusetts that employers remain optimistic about the economy — but just barely.

The AIM BCI declined 0.8 points to 53.2 during January, leaving it 2.7 points weaker than its level of January 2022. Employers remain wary even though the Massachusetts economy grew at a 3.1 percent annual rate and the U.S. economy at a 2.9 percent annual rate during the fourth quarter of 2022.

Companies are concerned that efforts by central banks to moderate inflation by raising interest rates will push the economy into a period of slower growth. At the same time, labor remains in tight supply. U.S. employers created a staggering half a million jobs during January and job vacancies remain at historic highs, with two openings for every unemployed person.

Look closer at the BCI and you’ll find some interesting insights about the mindset of Massachusetts business people in the new year.

The confidence employers have in their own companies stands at 56.5, well above the overall confidence reading. So, employers remain bullish on their own prospects despite some doubts about the overall economy.

The Massachusetts Index assessing business conditions within the Commonwealth declined 2.4 points to 50.2, down 5.1 points from a year earlier. The U.S.

Index measuring conditions throughout the country gained half a point to 46.7 but remained in pessimistic territory for the fourth consecutive month.

Participants in the Business Confidence Index Survey reflect the often-contradictory signals being given off by the economy.

“We have seen a definite slowdown in the large logistics buildings being planned and proceeding to construction. On the other hand, we are seeing fairly robust activity in the planning and con-

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struction of flex industrial space….We have seen multiple projects expedited to construction in order to fix interest rates before the next increase,” wrote one employer in the construction industry.

A manufacturer writes: “Most manufacturing companies will burn off excess backlogs from 2022 during the first two quarters of 2023. The real story is the second half...”

Those sentiments are consistent with confidence readings among employers around the nation.

The National Federation of Independent Business’ Small Business Optimism Index fell to its lowest level in six months during December. Likewise, the Institute for Supply Management Purchasing Managers’ Index of manufacturing activity fell to its lowest level since May 2020.

MassBenchmarks Leading Economic Index is projecting annualized GDP growth in Massachusetts of 1.4 percent in the first quarter of this year, slowing to 0.6 percent in the second quarter. The mean projection for U.S. GDP by the January survey of economists by the Wall Street Journal is for only a 0.1 percent annualized rate of growth in the first quarter, and a 0.4 percent decline in the second quarter.

The bottom line is that employers in most sectors remain at once fundamentally optimistic about 2023 though wary of an economy that continues to behave in unusual ways. Sure, companies in housing, technology and other interest-rate sensitive industries have seen significant slowdowns, but the majority of employers apparently still hold out hope that the Fed will be able to engineer a soft landing that moderates inflation without sending the economy into recession.

It’s shaping up to be an interesting year.