Vermont Business Magazine Citizens Bank’s National Citizens Business Conditions Index (CBCI) rose to 56.1 in the third quarter, regaining momentum after a decline in economic sentiment in the second quarter prompted by inflation fears. The index rose 1.7% this quarter in Vermont, representing a 1.2% increase from the prior quarter and a 6.8% decline from a year ago. This quarter’s score extends the index’s streak to eight consecutive quarters above 50, indicating continued growth conditions for businesses.

Employment strength was a key factor in the index’s rebound as the labor market weathered headwinds from continued inflation and aggressive interest rate hikes from the Federal Reserve . Inflation continued at higher than expected levels throughout the quarter, prompting two 75 basis point rate hikes from the Federal Reserve and bolstering expectations for further rate hikes.

The Treasury market continued to signal a potential slowdown on the horizon as yields on two-year Treasury bills remained higher than yields on 10-year Treasury bills, known as a curve. reverse yield. Although the outlook for 2023 remains uncertain, the economy continues to show momentum for now.

“The highest inflation in 40 years, a weakening housing market, mixed economic signals, aggressive Fed action via interest rate hikes and quantitative tightening have not derailed the strong labor market,” said Eric Merlis, Managing Director and Co-Head of Global Markets, Citizens. “There are other mixed signals in the economy, but as long as most people are reliably employed – and seeing wage gains, like in the third quarter – then there is a floor to the economic impact of the rate hikes.”

Four of the index’s five components were additive in the third quarter, up slightly from the moderation of the prior period. The most significant change is in the employment trend. After a “neutral” reading in the second quarter, the employment figures were better than expected in the third quarter.

Against a backdrop of high single-digit inflation and cumulative rate hikes of 3% vs. the Fed year-to-date, employment resilience is providing critical support to the broader economic picture.

Wage increases have also helped support consumers in the environment, although inflation and rising rates are putting 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 figures were down slightly from the second quarter as supply chain backlogs eased and inventory management became a bigger issue in some sectors. Service sector numbers rose from the second quarter, showing strength despite rate hikes.

Proprietary commercial bank customer activity data from Citizens, another underlying component of the CBCI, also reflected the quarter’s strength. On the other hand, new business applications were flat during the period, improving from the second quarter, but not increasing the overall value of CBCI.

Taken together, these components paint a picture of robust business activity. Proprietary business activity data behind the index also showed positive sector trends, with all sectors remaining in expansionary zones and showing some rebound from second-quarter levels. Utilities and Basic Materials led performance, boosted by continued price increases for most commodities and energy.

“The third quarter CBCI showed a business environment where activity has regained strength following a moderation in the second quarter. With inflation stubbornly high, the outlook for higher interest rates remains a priority,” Merlis said. “Yet the pent-up demand from the COVID pandemic appears to continue to fuel activity at a high level, as indicated by the broader trend over the past eight quarters. As the bond market continues to issue warnings recession, prevailing job security was a key source of support during the quarter.

The index draws on publicly available information and proprietary company data to establish a unique view of economic conditions across the country. An index value above 50 indicates expansion and indicates positive business activity for the next quarter. For more information on the last quarter’s index, please click here.

25.10.2022. PROVIDENCE, RI – Citizens Bank. “Footprint” in the Index refers to the region covered by Citizens Bank in Vermont and the Northeast.