Although Michigan and U.S. economic indicators fell in the second quarter, a new report says it could have been worse if not for swift federal action.
The second quarter of 2020 began with many businesses reeling from the shutdown of the global economy caused by the COVID-19 pandemic. However, the U.S. government and Federal Reserve rushed to enact legislation and policies to soften some of the worst impacts of the crisis.
By quarter’s end, the national Q2 2020 Citizens Business Conditions Index, a quarterly report published by Citizens Commercial Banking, showed a slight decline in the index, from 60.8 in Q1 to 60.3 in Q2.
The Michigan index, compiled by Citizens Bank, dropped from 54.5 in Q1 to 52.5 in Q2. However, Q2’s number still was better than Q4 2019, which was 51.7.
The Citizens Business Conditions Index is created using data about business production and employment gathered from private and public companies. That data includes revenue, manufacturing volumes, supply chain service, wages and Citizens’ proprietary data.
An index greater than 50 indicates an expansionary trend.
Most of the following underlying components improved or held steady during the second quarter:
- The Manufacturing and Non-Manufacturing Purchasing Managers’ Indices (PMI) from the Institute of Supply Management (ISM) were up for the quarter after a steep drop-off in April, as many businesses reopened in May or June. Some of the uptick in manufacturing can be attributed to manufacturers repurposing their operations to meet demand for pandemic-related products.
- Employment decreased overall during the second quarter, but wage growth ticked up, as the pandemic tended to result in the loss of lower-wage jobs.
- Proprietary measures of business activity among Citizens Commercial Banking’s more than 7,000 clients across the U.S. were basically flat with some sectors improving and others still languishing.
While the economic impact of the COVID-19 pandemic “clearly” pressured the underlying index components at the start of Q2, the report’s authors noted “surprising stability” in the overall economic landscape. Only one of the five underlying index measures — employment — actually worsened markedly between the ends of the first and second quarters, while the other four factors were either flat or positive between March and June readings.
Citizens said there still is considerable uncertainty about the third quarter and beyond, especially as COVID-19 cases surge in several states, but the end of the second quarter showed “marked improvement” over March and April.
Some businesses in some sectors — including leisure/entertainment and hospitality — may not survive the downturn, but according to Citizens, the overall recovery has featured more ups than downs so far.
“The pandemic-induced shutdown of the global economy was one of the most sudden drops we have ever seen in business activity and employment, but the unprecedented response by the government and the Federal Reserve was just as swift.” Tony Bedikian
“The pandemic-induced shutdown of the global economy was one of the most sudden drops we have ever seen in business activity and employment, but the unprecedented response by the government and the Federal Reserve was just as swift,” said Tony Bedikian, head of global markets for Citizens Commercial Banking.
“With that stimulus, we saw a steady turnaround in markets. There is still a lot of uncertainty — and that will likely continue until there is a vaccine — but the government and Fed acted quickly to try to soften the economic blow and help bridge companies and consumers to the other side of this crisis.”
Rick Hampson, president of Citizens Bank Michigan, based in Detroit, said downward motion — the drop of two points, which is larger than most quarter-to-quarter adjustments — was to be expected in the Michigan index, but it’s still in growth territory.
“It’s positive in that sense, albeit a big drop from what was a nice level in Q1,” he said. “In Q1, there was a lot of really good momentum, Michigan companies felt good and were performing well, and it felt like there were going to be good things going forward. But then the pandemic hit, and it affected most every region; (they’re almost all) down some level. It was not surprising, but the positive is it’s not down to contraction levels.”
He said the big question ahead is whether Michigan and all other regions of the country, as businesses start coming back online, can sustain healthy levels of economic activity amid uncertainty over COVID-19’s impact on the summer and fall and whether the federal government can reach an agreement on another stimulus package.
Hampson said economists are split over how long the economic downturn will last, whether through Q3, the end of 2020 or into next year, and there’s no way to know how it will play out given the “unprecedented” nature of the pandemic and its fallout.
“There is decent optimism among our middle market and large corporate clients in general, although certain industries are going to continue to be impacted,” he said.
The national index report is available at bit.ly/Q2citizensindexreport.
The Q3 index is expected to be published in October.