Citizens Business Conditions Index™ Drops in Q1
The national Citizens Business Conditions Index™ (CBCI) fell to 48.2 in the first quarter as economic momentum slowed due to moderately restrictive monetary policy. Despite softening revenue trends and a decline in new business applications, the U.S. economy remains fairly healthy. Citizens Business Conditions Index™ reveals mixed dynamics in the business environment with some positive signs in the ISM non-manufacturing component and green shoots in manufacturing outlook.
Resilient labor markets and consumer trends in the first quarter.
Expansionary ISM non-manufacturing component boosting the Index.
Some positive signs in the manufacturing outlook with the Index component turning positive in March.
Softening revenue trends after solid performance across most industries in the second half of 2023.
Decline in new business applications compared to the fourth quarter.
ISM manufacturing component contractionary for the sixth consecutive quarter.
Insights
The pullback in the Citizens Business Conditions Index (CBCI) to 48.2 in Q1 is a notable indicator that investors may want to consider. This figure, sitting below the neutral 50 mark, signifies a contraction in economic momentum. Factors such as elevated interest rates seem to be influencing business activity levels, potentially signaling a shift in the investment landscape. Investors would be well-advised to monitor these trends as they often precede broader economic shifts.
Revenue softening as detected in Citizens' proprietary data could anticipate challenges in corporate earnings, an essential driver of stock performance. The resilience in labor markets and consumer trends, however, provides a counterbalancing factor that offers some stability to the economic outlook. Meanwhile, the ISM manufacturing component's move into positive territory in March may suggest the beginning of a pivot or sectoral realignment, worth tracking closely for sector-specific investment decisions.
An assessment of the CBCI encompasses a variety of underlying components, reflective of diverse economic activities. The drop in new business applications, although still higher than pre-pandemic levels, could indicate entrepreneurial hesitance or market saturation. For long-term investors, these fluctuations can provide insights into market health and potentially highlight sectors that may either outperform or underperform.
It's also critical to consider that the non-manufacturing sector continues to expand, despite the overall index decline. This dichotomy within the index components underlines the unevenness of the economic landscape, reinforcing the need for a well-diversified portfolio that can weather sector-specific headwinds.
Economic momentum cools as rates remain elevated
Labor markets and consumer trends remained resilient in the first quarter. However, Citizens’ proprietary data showed softening revenue trends during the period after solid performance across most industries in the second half of 2023. New business applications also fell compared to the fourth quarter, though they remain well above pre-pandemic levels.
“While the Index shows business conditions dipping in the first quarter, the overall
The underlying components of the index reflected mixed dynamics in the business environment. One of the five components provided a boost to the Index, while one was neutral and three weighed on the reading.
- The ISM non-manufacturing component was expansionary as demand for services continued to be strong, boosting the Index.
- Employment trends, as measured by initial jobless claims, remained resilient and were neutral to the Index.
- New business applications declined, weighing on the Index, but remain elevated relative to pre-pandemic levels.
- The activity data of Citizens’ Commercial Banking clients also showed softening revenue trends after a strong fourth quarter.
- The ISM manufacturing component was contractionary for the sixth consecutive quarter. However, monthly data indicates some green shoots in the manufacturing outlook. The Index component turned positive in March for the first time since September 2022.
Overall, the first quarter CBCI reveals a business environment that is feeling the effects of a sustained period of higher rates.
“The first quarter index reading shows a business environment that is slowing as higher interest rates weigh on economic conditions,” said Merlis. “While concerns about inflation persist, the data provides evidence that tighter monetary policy is having its intended effect.”
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About Citizens Financial Group, Inc.
Citizens Financial Group, Inc. is one of the nation’s oldest and largest financial institutions, with
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Frank Quaratiello
617.543.5810
frank.quaratiello@citizensbank.com
Source: Citizens Financial Group, Inc.
FAQ
<p>What is the Citizens Business Conditions Index™ (CBCI) for the first quarter?</p>
The Citizens Business Conditions Index™ (CBCI) fell to 48.2 in the first quarter.
<p>What were the key components affecting the Index in the first quarter?</p>
Resilient labor markets and consumer trends, expansionary ISM non-manufacturing component, and contractionary ISM manufacturing component.
<p>How did new business applications perform in the first quarter?</p>
New business applications declined compared to the fourth quarter but remain elevated relative to pre-pandemic levels.
