PROVIDENCE – Second-quarter business conditions show a rise in unemployment insurance claims and a slowdown in small business creation, according to Citizens Financial Group Inc.’s quarterly Business Conditions Index that was released Thursday.
Interest rate hikes by the Federal Reserve are weighing on the economy, which can no longer lean on a strong labor market’s stabilizing effects.
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“The second-quarter CBCI shows a business environment where activity has slowed as interest-rate hikes seem to be working to curb inflation,” said Eric Merlis, Citizens managing director and co-head of global markets. “All eyes will be on the job market to see if the Fed can balance its efforts to fight inflation while minimizing impacts on employment.”
While the labor market has started to show some softening in the face of aggressive hikes, Citizens’ proprietary data on client revenue continued to be strong across most industries during the second quarter, according to the report, which showed manufacturing – a sector particularly susceptible to interest rate hikes – has slowed while there has been a shift in consumption toward services.
Consumers are spending more on services from companies that are better able to pass on costs.
“The overall U.S. economy has begun to slow in the second quarter even though Citizens’ middle market and mid-corporate clients continue to fare very well,” said Merlis. “The Fed’s tough medicine seems to be working and the rate of inflation is falling, with the labor market beginning to show some weakness and new business formation stalling.”
The index dipped 8.3% year-over-year to 48.5 nationally in the second-quarter, which shows a mixed business environment as fiscal policymakers attempt to curb inflation “without too much collateral damage.” New business applications have decreased in most states and jobless claims increased in the second-quarter.
However, Rhode Island’s index fell 6.3% year-over-year to 52.99. A 50-value threshold is considered expansionary. The New England region average was 56.12 for the quarter.
The latest data shows that Rhode Island businesses are faring well while policymakers move to tamp down inflation, though the bank’s corporate clients continue to “face increasingly complex challenges,” said Citizen’s president, Keith Kelly.
“Business conditions are mixed as the Fed has aggressively raised rates to curb inflation,” he said. “But the economy has been resilient and most of our clients have been able to navigate and grow in changing circumstances.”
Unemployment, wage growth and manufacturing are among the data sources used to develop the index, 20% of which is based on metrics related to the business activity of Citizens’ commercial clients.
The report said Citizens’ proprietary data on revenue continued to be strong across most industries during the second quarter. Client revenue remained strong across most industries, led by consumer services and healthcare.
Christopher Allen is a PBN staff writer. You may contact him at Allen@PBN.com.
