Economic momentum cools as rates remain elevated
Vermont Business Magazine The national Citizens Business Conditions Index (CBCI) fell from 51.78 to 48.21 to start the year as business activity normalized from elevated levels in recent quarters. The reading below 50 indicates that economic momentum slowed during the first quarter against a backdrop of moderately restrictive monetary policy. The corresponding Vermont and regional indices also fell. Vermont was down from 50.75 to 45.93 and the regional number was down from 51.84 to 48.16.
See table below.
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 2024. New business applications also fell compared to the fourth quarter, though they remain well above pre-pandemic levels. Citizens Bank has branches across Vermont.
“While the Index shows business conditions dipping in the first quarter, the overall U.S. economy remains fairly healthy,” said Eric Merlis, managing director and co-head of global markets at Citizens. “Signs of normalization can help put the economy on a more sustainable trajectory moving forward.”
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 CBCI 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.”
Meanwhile, the US Department of Labor jobs report published Friday showed that the economy slowed, which might be a good thing, according to Merlis:
“Today’s jobs numbers came in lower than expected, but can be interpreted as a positive sign that the economy is not getting overheated. The unemployment rate remained unchanged and overall this was likely a welcome report for the Fed which will remain data dependent but with a slight shift toward focusing on the employment side of the dual mandate of maintaining low inflation and full employment.”
The US labor market cooled notably last month as both hiring and wage growth slowed more than economists had expected in April. The US economy added 175,000 new jobs and the unemployment rate rose to 3.9% last month.
Citizens Business Conditions Index (CBCI)
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Source: 5.3.2024. PROVIDENCE, R.I. – Citizens Bank
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