Fissures have appeared in the once-invincible Massachusetts economy.
At least it seems that way to those in the trenches.
Business confidence among state employers fell in May to the lowest level seen since the peak of the pandemic, according to the latest survey.
Associated Industries of Massachusetts, in its monthly business confidence index, said Massachusetts business owners’ confidence in the economy fell half a point last month, from 50.1% to 49.6%, continuing a downward trend that began in November.
While that’s not much, it’s significant because a reading below 50 indicates a negative outlook.
„Massachusetts employers last month turned pessimistic about the economy for the first time since December 2020 as the state economy began to crawl and the Federal Reserve continued to raise interest rates,” the survey said.
The index, taken before the Labor Bureau’s report that the economy unexpectedly added 339,000 jobs and a negotiated deal in Congress to suspend the debt ceiling until 2025, reflected concern among employers that the country could be headed for recession. Policy driven disaster.
„Businesses have been hit by persistently high inflation and persistently high interest rates, which have dampened demand and raised costs. Not surprisingly, the futures index indicates that business leaders expect these conditions to worsen,” said Michael, chief investment officer at Eastern Bank Wealth Management and vice-chairman of AIM’s Economic Advisory Group. Tyler said in the poll’s release.
High inflation and its supposed opposite, persistently high interest rates, play a major role in this rosy business outlook inside and outside the Bay State.
The traces of the covid-19 infection and their impacts have long-lasting consequences.
Some of the businesses polled in this AIM survey may have struggled to convince workers to return to the office now that pandemic fears have subsided.
Employees’ reluctance to leave their homes — and companies’ tacit acceptance of remote workplaces — has had a chilling effect on the commercial real estate market — in Massachusetts and across the country.
Office demand has slumped in Boston, Cambridge and the suburbs, with the regional vacancy rate at 19.1% earlier this year, the highest in nearly two decades, the Boston Globe reported, citing data from real estate firm JLL.
Companies such as Verizon, Cengage and Duck Creek Technologies have subleased unused space. As hybrid work policies have become the norm, even corporate tenants looking for new office space are seeking it less and less.
„Usually they say: 'I don’t need as much space as I have,'” Matt Daniels, who leads JLL’s New England brokerage group, told the Globe.
In the first three months of this year, Greater Boston companies vacated 1.5 million square feet of office space — and experts are expecting more pain.
Office gluttony squeezes old office space disproportionately hard. Newer, Class A towers may still draw blue-chip tenants, while older locations don’t look very attractive.
Commercial real estate firms in the suburbs are also feeling the pull, where as of April, there was about 4.5 million square feet of subleased capacity — leased space a company wants to rent out to other tenants — on the market, Colliers data show.
Nationally, according to Business Insider, lenders are confused about getting commercial real estate loans on their books, with some banks willing to sell property loans at a discount even as borrowers make repayments.
This willingness to take losses on so-called performing real estate loans follows several warnings that they could be the 'next shoe drop’ after the recent turmoil in the US regional banking sector.
High inflation and inflated commercial real estate values aren’t the only issues scaring AIM survey respondents.
No doubt they were stunned by the state’s April tax-revenue collection.
The state Department of Revenue revealed that it generated $4.782 billion in April 2023, usually the strongest month of the year for tax collections. This was $2.163 billion less than in April 2022, a 31.2% decline, and $1.435 billion, or 23.1%, below the most recent monthly benchmark forecast.
That moved the state’s fiscal year from a projected surplus of $870 million to a deficit of $703 million.
Revenue collections rebounded in May, and while April’s missed revenue target was based on unsustainable previous years’ results, it should serve as a wake-up call that the days of consistently high tax receipts may be over.
This is a reality check for legislative leaders and the governor to keep in mind as they finalize the budget for the upcoming fiscal year.