While trade tensions and the Federal Reserve’s interest rate cuts pressured U.S. business sentiment in the third quarter, key economic signs remain positive and companies continue to grow, according to a new report.
Citizens Commercial Banking released the Citizens Business Conditions Index Report publicly last month for only the second time (the first being in Q2 2019), and it shows data for Q3 2019 as compared to the second quarter on both the national and state levels.
An index above 50 indicates an expansionary business trend and points to improved business growth for the next quarter.
The U.S. index dropped from 61.2 to 60.2 but remained well above 50, showing continued confidence.
Michigan’s business climate was better in Q3 than in Q2, with a business index of 52.4, up from the previous quarter’s index of 51.6.
The index is created using public and proprietary information gathered from private and public companies.
That data includes a number of underlying components such as revenue, manufacturing and nonmanufacturing volumes and national unemployment and wage growth, most of which remained strong during the third quarter:
While the manufacturing and nonmanufacturing purchasing managers’ indexes (PMIs) from the Institute of Supply Management (ISM) were down from second-quarter readings, the ISM nonmanufacturing PMI remained in expansion territory.
The ISM manufacturing PMI declined enough to signal contraction in the sector with the ongoing trade war between the U.S. and China a likely driver of uncertainty for manufacturers.
National unemployment figures decreased during Q3, and while wage growth slowed from the previous quarter, it remained at a healthy level.
Proprietary measures of business activity among Citizens Commercial Banking’s more than 7,000 clients across the U.S. remained strong.
“The U.S. economy continues to show its resiliency, powered by consumers who continue to ignore the increasing geopolitical noise as they head into the traditional holiday shopping season,” said Tony Bedikian, head of global markets for Citizens Commercial Banking.
“The slight dip in the index seems to have been caused by continued trade uncertainty, but even that was not enough to make much of a dent in the indicators overall. While there seems to be growing concern about next year, it also seems as if economists have been saying that every year for at least the last several years.”
Rick Hampson, president of Citizens Bank Michigan, said he was not surprised to see the Michigan index rise in Q3 based on what he hears from Citizens’ client companies.
“There’s caution around, ‘Is there going to be a downturn in the economy?’ and it’s talked about so much. Obviously, you can’t grow forever,” he said.
“But I would say through my engagement with CEOs and CFOs around the state of Michigan, they’re still positive, there’s still revenue growth, they’re still feeling good, albeit cautious, because of the cyclical nature of a lot of our companies across the state of Michigan — automotive and manufacturing — but I still hear pretty optimistic comments from these companies.”
Hampson said the index bodes well for 2020 because Michigan companies have been expanding since Q1 2017.
“Michigan’s economy continues its upward move, and I think that’s very positive for the state,” he said. “We have a good mix of companies with a long track record of success and new businesses that are working to change the trajectory of our economy.”
Hampson added that President Trump’s administration has been dropping hints that tariffs and the trade war are soon to be resolved, which would be a positive thing for manufacturers and the auto industry.
Speaking of the latter, Hampson indicated the potentially negative effects of the UAW strike against General Motors may show up in the fourth quarter index report.
Despite the uncertainty of the above factors, Hampson said he believes Q4 will see “continued positive” and “maybe even slightly improved” indexes.
Citizens Bank is headquartered in Providence, Rhode Island, and has about 100 locations in Michigan. The bank offers personal, business and commercial banking services as well as retirement and investment advising and economic “thought leadership.”