Business confidence returns to optimistic levels as economy gains yet more jobs

Quick on the heels of better than expected jobs numbers from the Department of Labor, the state’s employers are reporting they feel more optimistic about the future than they have in months.

According to the monthly Business Confidence Index published by the Associated Industries of Massachusetts, confidence among the state’s business owners grew 2.8 points in July to 52.5%, moving from pessimistic territory to positive and reversing months of decline.

“The confidence boost came as the United States and Massachusetts economies defied expectations of a recession in the face of 11 interest-rate increases by the Federal Reserve. The nation’s economy grew at a 2.4 percent annual rate in the second quarter, up from 2 percent in the first quarter, while inflation fell to a two-year low of 2.97 percent during June,” the Index reads, in part.

Confidence reported by the state’s employers fell to pessimistic levels for the first time in years this May and stayed below 50% through June, with businesses telling pollsters they were struggling to find employees in the midst of a high inflation environment.

Now, according to the index, businesses are feeling better about the pace of inflation and workers have more money to spend due to growing wages, and the numbers are promising enough to temper fears of a recession.

“A strong job market, vibrant consumer spending and resurgent business investment continue to move the economy in a positive direction. The job market remains particularly strong, giving Americans money to spend: personal income, after taxes and adjusted for inflation, rose at a 2.5 percent rate in the second quarter,” Sara Johnson, who chair’s AIM’s Board of Economic Advisors, said with the release of the index.

On Friday, the Bureau of Labor Statistics said the country added a total of 187,000 non-farm payroll jobs in July, keeping the unemployment rate essentially unchanged at 3.5%. Unemployment in Massachusetts sits at a “historic” low of 2.6%, according to AIM.

The association’s CEO, John Regan, said the state’s recent passage of a $56.2 billion budget will help keep employers feeling optimistic about the economy, but he also used the index’s release as an opportunity to push for passage of a tax cut package currently stuck in legislative limbo as lawmakers leave Beacon Hill for summer vacation.

“AIM supports the version of tax reform passed by the House of Representatives, a version that would reduce the tax on long-term capital gains from 12 percent to 5 percent over two years and raise the threshold for the estate tax from $1 million to $2 million. Massachusetts is one of just 12 states with an estate tax,” Regan 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%.

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