Michigan’s economic growth was booming in the first quarter with pandemic storm clouds gathering on the horizon, according to a new report.
The national Q1 2020 Citizens Business Conditions Index, a quarterly report published by Citizens Commercial Banking, showed a slight decline in the index, from 61 to 60.8.
But the Michigan report, compiled by Citizens Bank, showed an increase from 51.7 in Q4 2019 to 54.5 in Q1 2020.
The Citizens Business Conditions Index is created using proprietary and public data about business production and employment gathered from private and public companies. That data includes revenue, manufacturing volumes and wages.
An index greater than 50 indicates an expansionary trend.
Citizens Commercial Banking said the first quarter of 2020 showed “a tale of two U.S. economies” — one that was “solidly grounded” in January and another that found itself “tipped upside down” by the end of March.
“The U.S. economy was off to a strong start this decade and then the coronavirus spread globally and completely threw everything off track,” said Tony Bedikian, head of global markets for Citizens Commercial Banking. “Some sectors are doing better than others. Some have completely ground to a halt. The bull market went into a tailspin, though the government has stepped up to backstop the economy. The changes have been dramatic and more sudden than most of us have experienced in our lifetime.”
The Citizens Business Conditions index is derived from a number of underlying components, most of which declined during the first quarter.
- The Manufacturing Purchasing Managers’ Index (PMI) from the Institute of Supply Management (ISM) was up due to increased certainty over U.S. trade with China and Brexit, but the ISM Non-Manufacturing PMI declined.
- Unemployment increased during the first quarter, and wage growth stalled as the pandemic put the brakes on growth in several sectors.
- Proprietary measures of business activity among Citizens Commercial Banking’s more than 7,000 clients across the U.S. moderated as some sectors were hit harder than others.
Rick Hampson, president of Citizens Bank Michigan, said Michigan, as compared to the rest of the bank’s footprint, as well as the national average, “had pretty significantly the highest (index) increase” from Q4 2019 to Q1 2020, at 5.2%.
He said this was largely driven by the boom in the manufacturing sector.
“If you look at some of our key industries, overall in general, manufacturing still felt pretty good and positive. Automotive still had lots of, and still does have, lots of launches and activity and general positives,” he said.
“It’s all tempered by where we are today versus where we were in Q1, but there was an overall positive feeling among business owners and leaders, and the activity levels showed that.”
Hampson said on the flip side, Michigan also may see the biggest declines nationally due to the pandemic, given the cyclical nature of manufacturing — an industry in which companies have either been shut down altogether or have seen “significant” revenue decreases due to the impacts of COVID-19.
“I think we would see a bigger decline than the national average given that cyclicality,” he said.
“What will really drive it is how quickly can things turn back on, depending on what kind of business it is, but there are plenty that will be challenged through at least this next quarter and probably many quarters. So directionally, it’s got to go downward.”
Despite the “unprecedented” nature of this pandemic and the uncertainty of how the outbreak will continue to play out, Hampson said there is an emerging sense that the current recession will not be a one-quarter recession as initially hoped; “it’s likely to be longer than we would all like.”
The Q2 index will more fully reflect the economic impacts of the COVID-19 pandemic. It is expected to be published in July.