Report shows resilient economy

Citizens Business Conditions Index contains ‘definite signs of improvement,’ with some sectors faring better than others.
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Jim Malz

Economic conditions showed “definite signs of improvement” during the third quarter of 2020, the first gain during a year dominated by impacts of the pandemic, according to a new report.

The third-quarter Citizens Business Conditions Index, a quarterly report published by Citizens last month, showed businesses across the U.S. are proving to be “incredibly resilient,” with support from the Fed being a major factor.

Citizens is based in Providence, Rhode Island, and has branches in 11 states: Michigan, Massachusetts, New Hampshire, Vermont, Rhode Island, Connecticut, New York, New Jersey, Pennsylvania, Delaware and Ohio.

The national Citizens Business Conditions Index rose to 61.2 at the end of the third quarter, up from 60.3 at the end of the second quarter, with some sectors, such as manufacturing, faring better than others as the U.S. economy started to get back on track.

Numbers in Michigan were the highest they have been since the index was first reported in the fourth quarter of 2012. The Citizens Business Conditions Index for Michigan went from 52.5 in Q2 2020 to 55.1 in Q3 2020.

Citizens’ proprietary measure of business activity among clients showed particular strength in the industrial and government services sectors.

The fourth quarter may pose continued challenges for some sectors — including hospitality, entertainment and leisure and retail — as the number of COVID-19 cases rises, and many states respond with partial shutdowns.

“It’s obvious to everyone that life is not back to ‘normal’ in the United States, with the ongoing battle to contain COVID-19. Still, businesses are proving to be incredibly resilient,” said Tony Bedikian, head of global markets at Citizens. “The support from the Fed has been a huge factor. The capital markets are operating well, and we are seeing a lot of effective adjustments made by small and medium-sized companies as the government weighs possible additional stimulus.”

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 during the third quarter:

  • The Manufacturing and Non-Manufacturing Purchasing Managers’ Indices (PMI) from the Institute for Supply Management (ISM) were up for the quarter. Manufacturing rose more sharply while the broader services sector recovery held steady.
  • Employment increased during the third quarter, but wage growth decreased, impacted by the growing rate of job gains in the lower-wage workforce.
  • Proprietary measures of business activity among Citizens’ more than 7,000 clients across the U.S. were down slightly, with a few sectors improving and others still languishing.

Jim Malz, Midwest regional executive at Citizens, said the positive trends in Michigan were “very good news” relative to other states measured. Ohio’s index, for example, which was higher than Michigan’s, did not rise at quite the rate that Michigan’s did in the third quarter, but he said Michiganders and most of the states in Citizens’ footprint were “feeling a little bit better” about the economy in Q3.

“That’s not to say there aren’t some speed bumps and challenges out there for certain sectors, and we all know what those are, but by and large, very good news in the third quarter,” Malz said.

“I’m very confident we’ll persevere and get through it, and hopefully with the onset of a vaccine that sounds promising but is months away, maybe next year at this time, we’ll be back to somewhat of a sense of whatever the new normal is.

“It’s been tough, there’s no doubt about it, it’s been tough on a lot of people, and we certainly feel for those folks.”

Malz said he’ll be keeping his eye on fourth quarter factors such as the surge of COVID cases and associated partial shutdowns in various states, potential additional federal stimulus dollars, the holidays and the post-presidential-election dynamics.

“Right now, the fourth quarter is tricky, just given us those dynamics,” he said.

The national index report is available at bit.ly/Q3citizensindexreport.

The Q4 index is expected to be published in February.

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