Citizens’ business conditions index eases from peak in Q1

Vermont Business Magazine Citizens announced on Friday that the Citizens National Business Conditions Index (CBCI) fell to 52.9 in the second quarter of 2022, down from its eight-year high of 59.5 at the end of the first quarter, but continuing its streak to seven consecutive quarters above 50 , indicating continued growth conditions for the business. Citizens has bank branches throughout Vermont.

Business activity remains steady but is clearly cooling compared to the previous quarter. This could reflect an economy returning to a more sustainable level – or it could indicate that conditions are poised to worsen. Consumer inflation continued to rise in the quarter, reaching an annual rate of 9.1% in the June report. The Federal Reserve (Fed) raised interest rates twice during the quarter. The government bond market signaled a recession as the spread between the 2-year and 10-year bond yields fell below zero. Consumer sentiment has hit new lows. Still, spending remained steady as pent-up demand from COVID restrictions continued to boost economic activity.

“We are seeing several cross-currents in the environment. Concern levels are high, but the individual outlook is still good,” said Eric Merlis, Managing Director, Global Markets, Citizens. “Companies are still growing and maintaining positive momentum, and consumers are showing resilience. We see markets trying to calibrate expectations with these conflicting signals.”

Citizens announced on Friday that VT figures in the latest Citizens Business Conditions Index (CBCI) fell from last quarter (see table) – but less than the national decline.

Three out of five index components were additive in the second quarter, another sign of slowing activity after five out of five were positive in Q1. Both manufacturing and non-manufacturing indexes from the Institute for Supply Management headed into expansionary territory. However, they also showed moderation from Q1. The manufacturing index peaked around the first quarter of 2021 when the COVID recovery was in full swing. The non-manufacturing index peaked in the fourth quarter of 2021.

The index noted continued strength in the bank’s own commercial banking customer business, another major component of the CBCI. On the other hand, new business start-up filings have declined over the period, which lowers the CBCI and shows a pause from Q1.

Meanwhile, employment trends were neutral for the period. This is particularly noticeable at a time when growth is slowing and recession fears are increasing. After an unexpected contraction in GDP in the first quarter, a contraction in the second quarter could signal an economic recession, according to the standard definition. A typical recession is accompanied by a weak labor market and higher unemployment – ​​but the scenario can play out differently in an environment where the labor market is already struggling with labor shortages. If the US experiences a “jobs” slowdown, consumer activity may remain buoyant – more so than in a traditional recession.

While the path of inflation is still uncertain, this level of business activity may prove sustainable. As policymakers continue to tighten monetary policy and pressures on the supply chain ease, the outlook for inflation may be for a gradual slowdown.

“It is not surprising that we have come down from last quarter’s peak given the current market volatility and the Fed’s actions to contain inflation,” Merlis added. “We may be at a sustainable level of business activity, but there are still headwinds that could reduce activity.”

The index draws on public information and private corporate data to create 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 on the last quarter’s index, please visit here.

Preparing your company for the economic cycle

Every company faces challenges and opportunities in the life cycle of a business, but there are some strategies that most companies should consider when facing a possible economic slowdown or downturn.

Most companies were focused on becoming leaner during the pandemic, and many raised excess capital to be able to maintain liquidity

Now, many middle-market and mid-sized corporate firms are in a stronger position as they face another economic cycle, but business leaders still need to consider steps to help prepare for more rate hikes and taming inflation. pressure.

Here are five suggestions from Steve Woods, executive vice president and head of corporate banking:

  • Diversify your income streams

Diversifying income streams can help stabilize cash flow during a downturn. One of the best ways to diversify revenue streams is through a merger or acquisition. Look for a target that will serve as an effective hedge if your market is disrupted.

  • Review your current cash flow

A cash flow review should be done at least through the pandemic to demonstrate your company’s resilience and will give you and your financial partners important insight into potential obstacles.

  • Lock in expenses when possible

Hedging solutions can help provide security in variable interest rate and exchange rate environments. Commodity hedging can also lock in prices as a hedge against inflation.

  • Distinguish between types of expenses

Maintenance costs are how much the company spends just to maintain the status quo. Growth expenditures are new capital expenditures that will specifically result in revenue growth or margin expansion.

  • Adopt automated payment solutions

Reviewing financial processes and procedures such as invoicing and fine-tuning areas that can be improved will help streamline operations and avoid unnecessary costs.

A wide range of payment automation and timing solutions are available to help your company maximize cash flow.

Nationally, the index fell to 52.9 in the second quarter of 2022, down from its eight-year high of 59.5 at the end of the first quarter, but extending its streak to seven consecutive quarters above 50, indicating continued conditions for growth for business. Business activity remains steady but is clearly cooling compared to the previous quarter.

Earlier, the government bond market signaled a recession as the spread between the 2-year and 10-year bond yields fell below zero. Consumer sentiment has hit new lows. Still, spending remained steady as pent-up demand from COVID restrictions continued to boost economic activity. Today, the Federal Reserve can be expected to continue its campaign against inflation by aggressively raising interest rates at its meeting; tomorrow may bring GDP news suggesting the US economy shrank for a second consecutive quarter. Combined with this regional index, it is possible that the economy is returning to a more sustainable level – or conditions are set to deteriorate.

07/29/2022 PROVIDENCE, RI – Citizens Bank

Leave a Comment