Citizens announced today that the quarterly national Citizens Business Conditions Index™ (CBCI) was 54.4 for the fourth quarter, down from 57.8 at the end of September, but still in expansionary territory. Following particularly high readings in the second and third quarters, the latest index value still reflects the demand momentum that is driving business conditions. The CBCI has been in expansionary territory (above 50) for five consecutive quarters.
“The vast majority of companies have successfully adapted to the pandemic. This quarter we started to see some overheating. That’s prompting an adjustment back to a more moderate pace of growth,” said Eric Merlis, managing director, corporate risk solutions, Citizens. “A slight pullback will help the supply chain continue to normalize and allow the labor market to keep adjusting, both of which are constructive for confidence levels.”
With increasing concerns about inflation and a new COVID variant surging late in the quarter, there was considerable volatility. Supply-chain issues continued, something the omicron wave could further aggravate. Still, the strong demand we have seen throughout the year carried economic activity along at a fast pace. Indeed, the Federal Reserve announced changes to its policy outlook in an effort to stave off excessive inflation. Against this backdrop, three of the five underlying components in the CBCI were additive, while one was neutral and one had a moderating effect.
High readings in the Institute for Supply Management (ISM) indexes for manufacturing and non-manufacturing contributed to the positive CBCI value this quarter. As of December, the manufacturing index reflected some progress in supply chain and labor issues. The services index hit an all-time high in November. These indexes also capture sentiment, reflecting the broad-based confidence that continued this quarter throughout the economy.
Employment markers were neutral during the period, neither boosting nor pressuring the CBCI. Hiring activity continued on its trendline, driving the unemployment rate down, while wage inflation ticked upward. New-business applications were an area of relative weakness in the fourth quarter. However, we saw strength in the proprietary activity data of Citizens’ commercial banking clients, which is an underlying component of the CBCI as well.
A number of trends solidified the recovery in 2021 and even drove the economy toward early indications of overheating. Excess savings have been a key driver of the high demand level. In the fourth quarter, we saw signs that excess savings have finally tapered off and households are slowly returning to pre-pandemic behaviors.
Another key theme we saw in the index data this quarter was that business activity pulled back modestly from second and third quarter peak levels, but remained steady. As policymakers work toward removing support, a moderating trend in business activity should help ease inflationary pressures. Though the pandemic’s impact continued, the fourth quarter brought signs of continued strength alongside reassuring markers of normalizing trends in the economy.
The Index draws from public information and proprietary corporate data to establish a unique view of business conditions across the country. An index value greater than 50 indicates expansion and points to positive business activity for the next quarter.
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About Citizens Financial Group, Inc.
Citizens Financial Group, Inc. is one of the nation’s oldest and largest financial institutions, with $188.4 billion in assets as of December 31, 2021. Headquartered in Providence, Rhode Island, Citizens offers a broad range of retail and commercial banking products and services to individuals, small businesses, middle-market companies, large corporations and institutions. Citizens helps its customers reach their potential by listening to them and by understanding their needs in order to offer tailored advice, ideas and solutions. In Consumer Banking, Citizens provides an integrated experience that includes mobile and online banking, a 24/7 customer contact center and the convenience of approximately 3,000 ATMs and approximately 940 branches in 11 states in the New England, Mid-Atlantic and Midwest regions. Consumer Banking products and services include a full range of banking, lending, savings, wealth management and small business offerings. In Commercial Banking, Citizens offers a broad complement of financial products and solutions, including lending and leasing, deposit and treasury management services, foreign exchange, interest rate and commodity risk management solutions, as well as loan syndication, corporate finance, merger and acquisition, and debt and equity capital markets capabilities. More information is available at www.citizensbank.com or visit us on Twitter, LinkedIn or Facebook.
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