PROVIDENCE – Inflation and global unrest haven’t dampened the business environment yet, with Citizens Financial Group Inc. on Thursday reporting the highest value for its Quarterly Business Conditions Index since it began tracking the data in 2014.
The nationwide first-quarter index value of 59.5 marks a 7.3% jump over the value for the fourth quarter of 2021. It’s also 9.3% higher than the value a year ago when “reopening rebounds” first began, proving that consumer demand has come back earnest and businesses have adapted to the continued fallout from the pandemic, according to Citizens.
Rhode Island also saw its business environment improve, although by a smaller 0.5% over the prior quarter. The 57.7 index value for the Ocean State is also below the national index, but is still above the 50-value threshold that Citizens considers expansionary.
But whether the “super-charged post-Omicron bounce” can continue remains to be seen.
“Demand is still strong, leading to strong business conditions,” Eric Merlis, managing director of global markets for Citizens, said in a statement. “However, inflation is a major concern. It’s not just a strong economy that’s driving it – the pressures from supply-chain backlogs and the invasion of Ukraine have aggravated the situation. It’s a critical moment for policymakers to contend with all of these issues.”
The record-high in business conditions comes despite soaring inflation, which has reached its highest level in four decades. Meanwhile, Russia’s invasion of Ukraine and supply chain strangleholds continue to send prices soaring.
Despite these challenges, all five components used to measure the index showed improvement in the first quarter, an “atypical scenario,” according to Citizens. Eighty percent of the index is based on public data, such as ISM manufacturing and nonmanufacturing, unemployment and wage growth numbers. Twenty percent of the index is based on metrics related to the business activity of the bank’s commercial clients.
Employment was one the major drivers of index growth, as job openings continue to surpass the number of candidates looking for work, and initial jobless claims ticked down. New business formation filings were also robust, Citizens said.
Among Citizens’ corporate clients, energy companies reported the biggest gains thanks to surging fuel prices after Russia invaded Ukraine.
While consumer spending remained strong, confidence has begun to wane amid fears over inflation and future economic growth, according to Citizens. Whether business conditions will continue to make gains hinges upon what happens with inflation and federal monetary policy, according to Merlis.
“While we have reached a new index high, the jury is out whether the Fed can engineer a soft landing and sustain the strong level of business conditions,” Merlis said.
Nancy Lavin is a PBN staff writer. You may reach her at Lavin@PBN.com.
