Bridge collapse, inflation hit confidence, survey shows
Supply chain shortages and inflation cited as key concerns
Confidence among the state’s employers fell sharply last month amid concerns of a potential supply chain crunch as a result of the bridge collapse in Baltimore, rising wages, and insurance costs.
According to the Associated Industries of Massachusetts, the Business Confidence Index for March shows Bay State employers are feeling generally bullish about the future, however their faith in the market has been shaken somewhat by the collapse of the Francis Scott Key Bridge in Baltimore and concerns over the increased cost of paying and insuring their labor force.
“Massachusetts employers are still not persuaded that the economy is fully healthy,” the group said with the release of their March report. “Business Confidence Index (BCI) lost 2.3 points to 52.2 last month, breaking a threemonth string of increases.”
Every one of the constituent indicators AIM uses to build their index fell last month, with the sharpest drop found among the employment index, which “slid 4.7 points into pessimistic territory at 49.1, a clear sign of business caution.”
Employers still haven’t gotten over the supply chain shocks caused by the global pandemic, and the recent loss of a key shipping port only makes matters worse, according to Nada Sanders, a professor of supply chain management at Northeastern University and member of AIM’s economic advisory board.
“Baltimore is a primary processing point for imported autos and small trucks, but other East Coast ports should be able to help in the short run — at least until the bridge wreckage is cleared. However, if this situation drags on it will create economic impacts both on the East Coast and domestically ” Sanders said.
The last drop in business confidence was in November, when it fell to 51%, after which it rose for three straight months to 54.5%, the highest it’s been in the last year. Survey participants cited “high interest rates, rising labor costs, inflation, and softening demand” as the reasons for their worry, though March’s BCI is still above 50% and therefore in “optimistic” territory.
According to AIM, confidence this March is about 0.7% higher than it was this time last year, but that’s been somewhat tempered by inflation, which also remains higher than the Federal Reserve’s 2% target
News that the central bank may cut interest rates this year is helping to keep hope high among employers, according to Sara Johnson, the chair of AIM’s Board of Economic Advisors.
“The Fed has signaled that it expects to reduce its key interest rate three times during 2024 despite stronger-than-expected price increases during January and February. Financial markets have already priced in the three rate cuts, which should help the economy as we move through the year,” Johnson said.
Inflationary effects on the cost of labor has led to a “stable but still problematic” situation on the ground, one employer told AIM. A big part of the problem, according to AIM President and CEO Brooke Thomson, is that the cost of healthcare rose at twice the state’s benchmark rate in 2022. That increase, coupled with rising wages, puts employers in a tight spot with no simple solution available.
“The challenges facing the health care and healthinsurance systems in Massachusetts have been years in the making and will take years to resolve. AIM remains committed, however, to rolling up its sleeves and working toward a solution that preserves Massachusetts’ unique global health system without bankrupting the employers who pay most of the bills,” Thomson 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%.