A.I.M.'s Business Confidence Index Down Again in May.

Business Editors

BOSTON--(BUSINESS WIRE)--June 5, 2001

The Associated Industries of Massachusetts Business Confidence Index lost 1.4 points in May to 46.6, dropping the indicator to its lowest level since January 1992, A.I.M.'s Board of Economic Advisors (BEA) announced. Raymond G. Torto, the board's co-chair and principal, CB/Torto Wheaton, noted, "The Index is off 21.7 points since May 2000, when it was close to its all-time high (68.5), having suffered nine monthly declines in the past year." Torto added, "Responses to the survey indicated widespread uncertainty among Massachusetts employers, most of whom reported lower sales during the last six months, but who foresee gains in the next six months by a margin of almost two to one."

The Monthly Business Confidence Index, which will mark its tenth year in June, is based on a survey of A.I.M. member companies across the Commonwealth, asking questions about current and prospective business conditions in the state and the nation, as well as for the respondent's own operations. A number of component sub-indices are derived by analyzing responses to selected questions or those of a particular group of respondents.

Massachusetts Conditions Seen Competitive

The Current Index, reflecting conditions prevailing at the time of the survey, was the weakest of sub-indices, losing another 1.2 points to 43.3 - a reading last seen in April 1992. In May 2000 the current Index was 69.7, within a point of its record high. The Future Index, assessing prospects six months ahead, remained in positive territory above 50, but barely so at 50.2, off 1.3 for the month and 16.4 for the year. "This essentially neutral result reads, in context, as a sign of uncertainty, as employers are losing confidence in an immediate upturn without resigning themselves to expectations of recession," said Wayne Ayers, BEA co-chair and Chief Economist for FleetBoston Financial. It's worth noting said Ayers, "The Future Index was only slightly higher - 51.6 - as recently as October 1998, during another period of unsettled economic conditions."

The U.S. Index of national conditions lost eight-tenths of a point in May to 45,7, its lowest since August 1993, while the Massachusetts index of business conditions within the state was off 1.2 points to 46.8, its worst showing since January 1994. Since May 2000, the national indicator is down 25.2 and its state counterpart by 24.9, moving closely parallel. Over the same 13-month period, the Massachusetts Index has always been the higher of the two--the only time in 10 years it has led more than three years in a row. Ayers said, "This is evidence that the state's economy is more closely tied than in the past to national trends, and also that it is relatively strong by national standards, even when tested by a slowdown."

Uncertainty Grows

The clearest sign of uncertainty among survey respondents is the Company Index, based on their views of their own firm's circumstances, which fell 1.1 points to 47.3, its lowest reading in 10 years, below the levels seen in the depths of the recession in 1991. Meanwhile said Joseph D. Blair, Managing Director, Advest, Inc., "The Employment Index, which dropped sharply in April, regained 1.5 points to 46.2 indicating the desire of employers to maintain their workforce in a labor market that remains very tight despite the slowdown."

Confidence fell among manufacturers (-2.3, 45.3), while there was an insignificant gain among other A.I.M. members (+0.2, 53.5), while respondents in Greater Boston with its broad based economy, were more positive overall (+0.6, 49.4) as compared to the rest of the state (-4.2, 42.5) which is more dependent upon manufacturing. Blair noted, "There was little variation in responses by size of employer with regard to sales, but large firms were generally more negative on other questions."

State's Climate Key in Uncertain Times

Commenting on the results of the survey, Richard Lord, A.I.M.'s president and CEO said, "The monthly survey results appear, in historical perspective, unrealistically negative in light of objective conditions, which are far from those of the deep recession we experienced a decade ago." Lord noted that A.I.M.'s survey sample is weighted toward the manufacturing sector, which is in negative growth, but added, "Even manufacturing is incomparably stronger than it was in 1991, when it recorded similar confidence levels." Finally, Lord said, "While most of the sub-indices are near their lows of ten years ago, one is nowhere near that level: the Massachusetts Index of business conditions at 46.8 in May is more than twice its all time low, 23.2 in August 1991--which indicates that if the Commonwealth can maintain a competitive business climate, its economy can ride out a recession or forge ahead in an upturn.

Media Contacts:

Raymond G. Torto, Ph.D., CB Richard Ellis/Torto Wheaton Research, [phone]

Wayne M. Ayers, Ph.D., FleetBostonFinancial, [phone]

Donald J. Barry, Jr., Sr. Vice President, Citizens Bank, [phone]

Richard C. Lord, President, Associated Industries of Massachusetts, [phone]

Joseph D. Blair, Managing Director, Advest, Inc., [phone]

Sara L. Johnson, DRI-WEFA, [phone]

Frederick S. Breimyer, State Street Bank & Trust Company, [phone]