Citizens Business Conditions Index rebounds in Q3

Vermont Business Journal The Citizens Bank’s National Citizens’ Business Conditions Index (CBCI) rose to 56.1 in the third quarter, regaining momentum after inflation concerns led to a dip in economic confidence in the second quarter. The index rose 1.7% in Vermont for the quarter, up 1.2% from the previous quarter and down 6.8% from last year. This quarter’s score brought the index above 50 for eight consecutive quarters, indicating the continued growth of businesses.

Employment strength was a key factor in the index’s rebound as the labor market weathered the twin headwinds of persistent inflation and sharp interest rate hikes by the Federal Reserve. Inflation continued to be higher than expected throughout the quarter, prompting the Fed to raise rates by 75 basis points twice and raising expectations for further hikes.

The U.S. Treasury market continues to signal a potential slowdown, as the two-year yield has been higher than the 10-year yield, an inversion of the yield curve. Although the outlook for 2023 remains unclear, the economy is still showing strong momentum.

“The highest inflation in 40 years, a weak housing market, mixed economic signals, aggressive Fed action through rate hikes and quantitative tightening have not derailed a strong labor market,” said Eric Merlis, managing director and co-head of global markets. citizen. “There are other mixed signals in the economy, but as long as most people get reliable employment – and you see wages rising, as they did in the third quarter – then there is a bottom line on the impact of rate hikes on the economy.”

Four of the index’s five components were cumulative in the third quarter, up from a modest increase in the previous quarter. The biggest change is in employment trends. Payrolls in the third quarter came in better than expected after a “neutral” reading in the second quarter.

Against the backdrop of high-single-digit inflation and the Fed’s cumulative rate hike of 3% year-to-date, the resilience of employment provides key support for the broader economic picture.

Rising wages also help strengthen consumers in an environment, even as inflation and higher interest rates put direct pressure on household budgets.

The Institute for Supply Management’s manufacturing and non-manufacturing indices continued to reflect expansionary activity across the economy. Manufacturing data slowed slightly from the second quarter as supply chain backlogs eased and inventory management became a bigger issue in some industries. Services data rose from the second quarter, showing strength despite the rate hike.

Proprietary activity data for Citizens Commercial Banking customers, another fundamental component of CBCI, also reflected strength during the quarter. On the other hand, applications for new business formation remained neutral during the period, improving from the second quarter but not increasing CBCI value overall.

Taken together, these components paint a picture of strong business activity. Proprietary business activity data behind the index also showed positive industry trends, with all sectors in expansion territory and showing a rebound from second-quarter levels. Utilities and basic materials led the performance, driven by continued gains in most commodities and energy prices.

“The CBCI in the third quarter showed business conditions, with activity recovering from the slowdown in the second quarter. With inflation stubbornly high, the prospect of a rate hike remains a key focus,” Mellis said. “However, as broader trends over the past eight quarters suggest, pent-up demand from the coronavirus pandemic appears to continue to drive high levels of activity. While the bond market continues to issue recession warnings, widespread job security is for the current quarter. main source of support.”

The index draws from public information and proprietary company data to create a unique view of the state of business across the country. An index value greater than 50 indicates expansion and points to positive business activity for the next quarter. For more information on last quarter’s index, please visit here.

October 25, 2022. Providence, Rhode Island – Citizens Bank. The “footprint” in the index refers to the area Citizens Bank covers in Vermont and throughout the Northeast.

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