Report shows continued ‘expansionary’ trend

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Easing trade tensions with China, increased consumer spending and a more stable interest rate environment helped improve U.S. business sentiment in the fourth quarter, according to the latest Citizens Business Conditions Index.

In the report released this month by Citizens Commercial Banking, the national index increased from 60.2 to 61 and remained well above 50, showing “growing confidence” in the U.S. economy.

The Michigan business index — compiled by Citizens Bank — dropped slightly from 52.4 to 51.7 from Q3 2019 to Q4 2019. But because the reading is above 50, it still remains in expansionary territory for employers and points to improved business growth for the next quarter, according to Citizens Bank.

The Citizens Business Conditions Index is created using public and proprietary information gathered from private and public companies. That data includes revenue, manufacturing volumes and wages.

The following components, most of which remained strong during the fourth quarter, form the basis of the index:

  • The Manufacturing Purchasing Managers’ Index (PMI) from the Institute of Supply Management (ISM) was down, but the ISM Non-Manufacturing PMI rose.

  • Unemployment figures decreased, or remained stable, across most of the country during the fourth quarter, and wage growth continued at a slow to moderate pace.

  • Proprietary measures of business activity among Citizens Commercial Banking’s more than 7,000 clients across the U.S. remained strong.

The Michigan Q4 reading compares favorably to four years ago when Michigan’s business index measured 44.3.

Rick Hampson, president of Citizens Bank Michigan, said he finds the state-level data “encouraging,” despite it being lower than the national average.

“A handful of years ago, Michigan was below 50, even after the Great Recession, until we started having more positive growth. … To be consistently above 50 for a number of quarters — I looked at the last five quarters, which ranged at the 52 or 53 level — to me, it makes sense.

“With the concentration on capital-intensive companies like auto and the other manufacturing we have here, it would be surprising to see it much higher, up to the national average. I take it as encouraging that it remains above 50 and, therefore, expansionary.”

Hampson said although companies are steadily growing organically and through acquisitions, low unemployment rates continue to create headwinds as they look not only for skilled workers but also for low- to medium-skilled talent, as people have an abundance of options about where to work right now.

He said he believes business leaders may be more cautious about spending heading into the uncertainty of the election season.

Tony Bedikian, head of global markets for Citizens Commercial Banking, said several factors led to the higher national index.

“Progress toward the first phase of a China trade deal, more clarity around Brexit, improved consumer spending and a stable rate environment took some of the uncertainty off the table for business leaders in the fourth quarter,” he said.

“Of course, this quarter, the coronavirus is having an impact on certain sectors and markets, but the overall economic trend so far is still positive.”

Hampson added the coronavirus — which had claimed over 1,800 lives as of press time with over 71,500 reported cases worldwide — has delayed or canceled shipments for companies that do international trade and has the potential to affect global interest rates depending on how long it will take to produce a vaccine and halt the outbreak.

“It came out of nowhere,” he said.

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