A.I.M.'s Business Confidence Index Up in December; Recession's End Foreseen.

Business Editors

BOSTON--(BUSINESS WIRE)--Jan. 8, 2002

Associated Industries of Massachusetts' (A.I.M.) Business Confidence Index gained a half-point in December to 43.2, as Massachusetts's employers began to believe that the end of the recession is in sight. The Index was down 15.4 for 2001 (December-December), and has lost nearly 25 points since its crest in the second quarter of 2000.

"The A.I.M. Index fell into negative territory, below the midpoint of its 100-point scale, in April, when economists now date the onset of the national recession," said Raymond G. Torto, Co-chairman of A.I.M.'s Board of Economic Advisors (BEA) and Principal, CBRE Torto Wheaton Research. He further stated, "Respondents to the December survey generally expect that Massachusetts will suffer no worse than the U.S. in this downturn, and that recovery will be well underway in the second quarter of 2002."

A.I.M. is the state's principal employer organization. The ten-year-old Business Confidence Index is based on a monthly survey of A.I.M. member companies from across the Commonwealth, asking questions about current and prospective business conditions in the state and the nation, as well as for the respondents' own operations. A number of component sub-indices are derived by analyzing responses to selected questions or those of particular groups of respondents.

Future Seen Brighter Despite Current Weakness

"Among the sub-indices based on responses to selected questions, there was a striking contrast between the Current Index, assessing conditions at the time of the survey, and the Future Index, for conditions six months ahead," said Wayne G. Ayers, BEA Co-chair and Chief Economist, FleetBoston Financial. "The Current Index was down 1.2 in December to 38.8, a 22.9-point loss for the year; while the Future Index gained 3.2 to 49.0, and was off only 7.5 from December 2000," Ayers said.

Ayers also noted, "The U.S. Index of Business conditions prevailing nationally edged up two-tenths of a point in December to 40.9, while the Massachusetts Index of conditions within the state added nine-tenths to 41.7, which marks the 20th consecutive month that the state index has remained above its national counterpart."

Sales Continue Weak

"Among the sub-indices that relate to the respondents' own firms, the Sales Index reached an all-time low at 43.9, down 0.2 for the month and 12.2 for the year, while the Employment Index by contrast gained four-tenths in December to 42.6, cutting its loss for 2001 to 11.3 points," said Donald J. Barry, Jr., Senior Vice President, Citizens Bank of Massachusetts. In addition, Barry said, "Confidence among manufacturers remained below 50 for a ninth month, though rising three points to 42.1 while for other employers, the Index lost 2.1 to 49.3 - marking only the second monthly dip below 50 for this group."

Barry reported, "The confidence reading was higher in Greater Boston than in the rest of the state (45.1 - 40.8), and there was general agreement on all questions among small, medium-sized, and larger employers."

Recovery Seen Ahead, But Timing No Sure Thing

"The good news from the December survey is that most Massachusetts employers believe that the recession, though real, is bottoming out, and recovery is within sight," said Richard Lord, A.I.M.'s President and CEO. "A majority of respondents (52%) thought the overall economic situation would not get much worse, though 39% found it too uncertain to predict, while seven in ten foresaw an end to the recession in mid-2002," said Lord.

Commenting on this situation, Lord said, "The expectation that the recovery itself will be less than vigorous is, however, a sign that it could be disrupted or delayed by negative influences such as another terrorist attack or a spike in fuel prices." Meanwhile, he said, "at the state level, a sudden worsening fiscal situation or a sharp rise in business costs (and health insurance premium rates are already surging) could stand in the way of recovery and lead to a more protracted, and much more damaging, recession."