January 10, 2018

Climbing business confidence hits 17-year index peak

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Consumer confidence climbed again in December and ended 2017 on a high not reached since the beginning of the millennium, Associated Industries of Massachusetts said Tuesday.

AIM’s Business Confidence Index rose by one point to 63.5 last month, capping the year off by reaching the index’s highest level since November 2000. Through 2017, the index gained 3.2 points and employer confidence levels remained “comfortably within the optimistic range,” AIM said.

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

Every segment of the index improved in 2017, except for a half-point drop in the employment index. Analysts attributed the drop to a shortage of qualified workers due to low unemployment and changing demographics.

“Massachusetts employers maintained a uniformly positive outlook throughout 2017 and passage of the federal tax bill only added to that optimism,” Raymond Torto, chair of AIM’s board of economic advisors, said in a statement. “At the same time, the 12-month decline in the Employment Index reminds us that the persistent shortage of skilled workers has reached an inflection point for the Massachusetts economy.”

Torto said Massachusetts companies have put off expansions, declined to bid for contracts or outsourced work because they can’t find the workers they need.

AIM’s Massachusetts Index, which gauges business conditions within the commonwealth, surged 2.4 points to 67.6 in December, ending the year 5.8 points higher than it began 2017.

The U.S. Index of national business conditions continued its yearlong rally in December, climbing 2 points to 64.2. Last month marked the 94th consecutive month in which employers have been more optimistic about the Massachusetts economy than the national economy, AIM said.

“Employer attitudes largely reflect a national economy that grew at its fastest pace in three years during the third quarter on the strength of business spending on equipment,” Michael Tyler, chief investment officer at Eastern Bank Wealth Management, said in a statement. “The headline is that unemployment is down and the financial markets are up.”

Employers’ spirits were further buoyed at the end of 2017 when they received a gift in the form of federal tax legislation lowering the corporate tax rate and reducing rates for pass-through entities, AIM President and CEO Richard Lord said.

“The tax bill produced short-term benefits, ranging from companies like Comcast and Citizens Financial providing bonuses to employees to the utility Eversource reducing electric rates in Massachusetts,” Lord said. “At the same time, employers are cautious about the effect that other provisions — including limitations on the deduction for state and local taxes — will have on the overall Massachusetts economy.”

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