Citizens Business Conditions Index™ Drops Sharply in Q4
Citizens Financial Group reported a drop in its national Citizens Business Conditions Index™ (CBCI) to 48.5 for Q4, ending eight quarters of growth. This decline reflects the impact of Federal Reserve rate hikes as inflation eased for the first time in 2022.
Despite moderated business activity, consumer spending in travel and recreation remained strong. The index components were mixed, with commercial banking clients showing positive conditions, while rising jobless claims and softening new business applications weighed on overall performance. The labor market's stability is emphasized, with an unemployment rate of 3.5%. The report indicates a cautious outlook amid recession signals from the bond market.
- Strong consumer activity in travel and recreation.
- Commercial banking clients showed positive conditions.
- Unemployment rate decreased to 3.5%.
- CBCI dropped to 48.5, indicating contraction.
- Rising initial jobless claims and layoffs in various sectors.
- Decline in new business applications.
Rate increases take toll as companies prepare for economic slowdown
While business activity moderated, underlying components of the index were mixed, showing some areas of strength in the period.
For the first time in 2022, inflation did not come in at higher-than-expected levels, and, in fact, it declined steadily during the quarter as the Fed continued its rate-hike campaign with two additional increases, supported by the general strength of the employment market.
Consumer activity proved strong in many categories, with healthy spending in travel and recreation. The
“This quarter was a turning point for sentiment as we saw heightened impact from the Fed’s policy actions,” said
Relief from Inflation Surprises
The underlying components of the index showed mixed dynamics in the business environment. Two of five components boosted the index level, one was neutral and two weighed on the reading.
The proprietary activity data of Citizens’ commercial banking clients, a component of the index, was strong, suggesting that the conditions at middle-market businesses remained positive. The ISM non-manufacturing index also remained expansionary, though it did soften in December as extreme weather hampered holiday travel and interrupted power in some communities. Consumers spent more on services as they shifted away from large-goods purchases, which tend to be more connected to financing costs.
The strength of the consumer relies directly on employment, which has eased modestly but remains strong overall. As an index component, employment trends detracted from the index thanks to rising initial jobless claims; layoffs were announced in some technology, financial and automotive companies. New business applications also softened, weighing on the index. Still, the unemployment rate ticked down to 3.5 percent in December and non-farm payrolls edged higher in the tight labor market.
The ISM manufacturing index had a neutral impact on the CBCI level, easing from prior quarters. New orders in manufacturing have declined for four months on softer demand. The trend has contributed to inflation relief as well as to easing backlogs across the supply chain.
The mix of trends captures a quarter where softening demand for goods was deflationary while demand for services was steady amid broader employment stability.
Another Quarter of Commodity-Related Sector Leadership
Commodity-related sectors led performance for the sixth quarter in a row; this quarter, energy and utilities were the strongest. Many commodities were down from mid-year peaks but remained at elevated levels amid the ongoing war in
Geographically, we saw the highest levels of activity among companies in the Midwest region, followed closely by companies in the Mid-Atlantic. Companies in the Northeast showed the lowest levels of growth.
Navigating a Transitional Time
The fourth-quarter CBCI revealed a business environment that is finally seeing the results of a year-long rate hike campaign from the Fed that drove short-term rates
“The fourth-quarter CBCI showed a business environment where activity moderated as interest-rate hikes to curb inflation took hold,” said Merlis. “While the bond market continues to issue recessionary warnings, a still-strong job market continued to be a source of support during the quarter.”
The Index draws from public information and proprietary corporate data to establish a unique view of business conditions across the country. An index value greater than 50 indicates expansion and points to positive business activity for the next quarter. For more information about this past quarter’s Index, please visit here.
Citizens is a trusted strategic and financial adviser, consistently delivering clear and objective advice. The Citizens approach puts clients first by offering great ideas combined with thorough market knowledge and excellent execution, to help our clients enhance their business and reach their potential. For more information, please visit the Citizens website.
About
View source version on businesswire.com: https://www.businesswire.com/news/home/20230124005337/en/
617.543.5810
frank.quaratiello@citizensbank.com
Source:
FAQ
What was the Citizens Business Conditions Index for Q4?
What contributed to the drop in the CBCI?
What is the current unemployment rate according to the press release?
How did consumer spending perform in Q4?