Citizens: Cooling business climate could signal recession

A COOLING business environment could bring stability or signal a recession, according to the Quarterly Business Conditions Index published by Citizens Financial Group Inc. on Wednesday. /PBN FILE PHOTO

PROVIDENCE – A slight economic cooldown could bring needed stability to a volatile market.

Or, it could signal that a recession is around the corner.

Either way, it’s too soon to tell, according to analysis included in Citizens Financial Group Inc.’s Quarterly Business Conditions Index, published on Wednesday.  

After reaching record heights in the first quarter of the year, business conditions both nationally and Rhode Island dropped slightly in the second quarter, driven by rising interest rates and a tight labor market that were offset by strong consumer spending.

- Advertisement -

“We are seeing several cross currents in the environment,” Eric Merlis, Citizens’ managing director of global markets said in a statement. “Concern levels are high, but individual outlooks are still good. Companies are still experiencing growth and maintaining positive momentum, and consumers are showing resilience. We see markets trying to calibrate expectations with these conflicting signals.”

Indeed, while Rhode Island’s business environment weakened slightly compared with the prior quarter – down 2% – it remains 11.1% higher than a year ago. The 56.58 index value for the Ocean State is also square above the 50-value threshold that Citizens considers expansionary.

Nationally, the 52.94 index value marks an 11% drop over the prior quarter, and down 8.2% over a year ago.

Keith Kelly, president for Citizens Bank Rhode Island, chalked up the state’s relatively strong economic position in part to a fruitful summer travel and tourism season, which he expected to continue into the fall.

“There’s so much pent-up demand that the travel season is being extended,” he said. “If you go down to Newport, the hotels are full, the restaurants are crowded. There’s a lot of activity there.”

While Rhode Island companies are not immune from the tight labor market sweeping the nation, that they are still trying to hire – and come up with workarounds like new technology and equipment to continue operations with fewer bodies – also suggests the state is well-positioned, Kelly said.

Whether a recession is on its way is hard to tell. The telltale signs of a weak labor market and high unemployment might not show up the same way this time, since the job market is already struggling with a labor shortage, according to Citizens.

“It is not surprising that we came down from last quarter’s peak given current market volatility and Fed action to curb inflation,” Merlis said in a statement. “We may be at a sustainable level of business activity, but there are still headwinds that could push activity lower.”

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. 

Both manufacturing and nonmanufacturing indexes remained in the expansionary category, although down from the prior quarter. Commercial banking client activity showed “continued strength” although it was slightly offset by a drop in new business applications. 

Employment trends for the second quarter were neutral.

Nancy Lavin is a PBN staff writer. You may reach her at Lavin@PBN.com.

No posts to display