Fiscal cliff concerns holding back business confidence | Waccabuc Real Estate

Business confidence in the Bay State dipped two-tenths of a point last month to 51.1 as state employers await both election results and action to address the fiscal cliff of federal spending cuts and tax increases planned to go into effect in January, according to the latest index released by the Associated Industries of Massachusetts.

“The political polls have shown a closely divided national electorate, perhaps increasing concerns among our survey sample of deadlock in Congress just as congressional action becomes most urgent,” said Raymond G. Torto, global chief economist at CB Richard Ellis Group Inc., and chair of AIM’s Board of Economic Advisors, in a statement. “A year ago, in the aftermath of the debt ceiling crisis, poor ratings of national conditions brought our index even lower; at that time, however, Q3 domestic economic growth was a bit slower, and the European situation seemed more critical.”

The AIM index is calculated on a 100-point scale, with 50 as neutral, a reading above 50 as positive, and a reading below 50 as negative.

The U.S. index of national business conditions among respondents suffered the biggest drop — off 5.6 points at 39.4, according to the index.

“This is a very low number for an economy which is still growing, albeit slowly,” said Fred Breimyer, regional economist for the Federal Deposit Insurance Corp. and a BEA member. “It is the lowest reading of 2012; only 6 percent of survey respondents called national conditions ‘good,’ while 50 percent rated them ‘bad.’ ”

The Massachusetts index of conditions within the Commonwealth was off 1.5 points to 48.6, according to the index.

The current index, which assesses overall business conditions at the time of the survey, shed a tenth of a point to 50.8, while the future index, which measures expectations for six months ahead, was off two-tenths to 51.5.

“Massachusetts employers are not experiencing a significant deterioration of conditions, and they still expect the business climate to improve somewhat in the coming months,” Breimyer said. “This looks like uncertainty about policy in the short-term, with hope for some resolution after the election.”

All three of the company-related sub-indices rose in October. The broad company index rose 2.1 points to 55.9, the sales index added 1.8 points to 54.4, and the employment index gained 3.4 points to 53.7.

Confidence remained higher among manufacturers at 52.8, a 0.3 point drop, than among other employers at 49.8, a 0.5 point rise, but the gap narrowed, according to the index.

AIM President and CEO Richard C. Lord said to some extent Massachusetts employers seem most concerned with what Congress will do between Election Day and Inauguration Day to head off a looming fiscal crisis.

“Right now, they don’t know what tax rates will be in two months, which makes planning difficult; and last year’s political deadlock which brought us to this situation was not a confidence-builder, to say the least,” he said. “And while a temporary fix may be necessary, it will not be sufficient — we need to see constructive agreement on a long-term solution, soon.”