Report shows economic rebound continues

News of two effective vaccines, presidential election outcome buoyed fourth-quarter optimism.

The Citizens Business Conditions Index showed a second consecutive quarter of economic gains as optimism fueled by COVID-19 vaccine announcements and increased election certainty began to outweigh concerns about spiking pandemic cases.

Citizens — which is based in Providence, Rhode Island, and has branches in Michigan and 10 other states — published its fourth-quarter Business Conditions Index on Feb. 4. The national index rose modestly to 61.4 in the final quarter of 2020, up from 61.2 at the end of the third quarter, showing a continuing rebound after the impact of the COVID-19 pandemic put downward pressure on the index earlier in 2020.

The Michigan index rose more significantly, from 55.1 in the third quarter to 56.4 by the end of Q4, the highest index number since Citizens started the measurements in 2012.

The index draws from public information and proprietary corporate data to establish a 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.

The Business Conditions Index is derived from a number of underlying components, many of which improved during the fourth quarter. 

  • The Institute for Supply Management (ISM) Manufacturing Index rose sharply for the quarter, helping to buoy the Citizens Index, while the Non-Manufacturing Index dipped.
  • Employment increased overall during the fourth quarter despite a disappointing jobs report for December. Wage growth was flat.
  • Proprietary measures of business activity in the fourth quarter among Citizens’ more than 7,000 clients across the U.S. were down slightly.

Optimism for the future was a clear theme in Q4, Citizens said in the national report. Though the pandemic raged on, with higher infection and death rates, the breakthrough news of two effective vaccines offered communities and businesses in the fourth quarter hope about when and how the pandemic will end. The definitive outcome of the presidential election also was supportive to the index, Citizens said. At year’s end, CEOs reported more upbeat outlooks for sales and capital investments, according to sentiment surveys.

Still, the operating environment of the fourth quarter reflected the ongoing challenges. Among components of the Business Conditions Index, Citizens saw softening in the ISM non-manufacturing numbers and within proprietary data measuring business activity for Citizens’ commercial banking clients. Wages were steady, while a strong rebound in manufacturing drove the index higher.

Jim Malz, Midwest regional executive for Citizens, said the rebound in manufacturing, especially in the automotive manufacturing sector, bodes well for continued expansion in Michigan. Whether that will extend to the labor market is another matter, as employers may be relying on increased automation and the capabilities of Industry 4.0 to increase productivity while not necessarily adding back jobs, Malz said.

“That’s always been a phenomenon over time because of technology advances and companies getting more efficient … It’s a matter of survival,” Malz said. “Behaviors are changing so fast these days in terms of how consumers buy and pay for goods and services, and the same holds true in the manufacturing side, around how we rethink our models that years ago may have worked. It’s a great reminder that we always have to be ahead of the curve because things do change, especially if we have an uncontrollable event like this pandemic. It really just showed or exacerbated the need for companies to get more creative and find new ways to reach their end users.”

Labor markets in the national index showed strong gains from earlier lows. Some sectors continued to fare better than others, with the Q4 report showing strength in the financial and energy sectors.

“The fourth quarter was a real turning point. With the vaccine news and a clear outcome for the presidential election, we saw a lot more confidence about the future among business leaders,” said Tony Bedikian, head of global markets at Citizens. “The manufacturing sector has been strong, and the overall economy has shown resiliency since the middle of the second quarter last year.

“The first quarter of 2021 has already seen major news events in Washington, D.C., and retail trading volatility shaking Wall Street. As our M&A Outlook also recently noted, we are seeing a healthy environment for corporate deal-making spurred by the vaccine rollout and anticipated tax policy changes.”

Malz said continued upticks in the index moving into 2021 will depend on how the vaccine rollout progresses, as well as whether the U.S. will be able to effectively contain the new strains of the COVID-19 virus that are emerging around the world and have already made their way to Michigan.

He said economic optimism could increase if Congress passes an additional stimulus bill — at press time this was still uncertain — and signals its willingness to move forward in unity under the new presidential administration.

In general, Malz said the business climate for the second half of 2021 looks promising, with markets expected to be in good shape, interest rates remaining low and companies able to pay down debt and leverage their liquidity for investments.

On the consumer side, Malz said additional stimulus funds could position families to pay down debt, and low interest rates mean it’s still a good time to consider homebuying and mortgage refinancing.

The full Q4 Citizens Business Conditions Index report can be found online.

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