PROVIDENCE – As business conditions rebound nationwide, Rhode Island’s business environment is growing worse, according to new analysis by Citizens Financial Group Inc. published Tuesday.
Job growth helped propel a 5.6% quarter-over-quarter increase in the national index, which reached 56.06 in the third quarter, according to Citizens Business Conditions Index. However, Rhode Island’s index dipped 8.7% in that same time frame, down to 51.66 for the quarter that ended Sept. 30.
Still, both national and state index numbers remain above the 50-value threshold that Citizens considers expansionary. Whether this expansion will continue depends largely on how job growth can overcome inflation and high interest rates, according to Eric Merlis, Citizens managing director and co-head of global markets.
“The highest inflation in 40 years, a weakening housing market, mixed economic signals, aggressive Fed action via interest rate hikes and quantitative tightening have not derailed the strong labor market,” Merlis said in a statement. “There are other mixed signals in the economy, but as long as most people are reliably employed – and seeing wage gains, as in Q3 – then there’s a floor to the economic impact of rate hikes.”
Indeed, economic headwinds caused both the national and state business conditions index to fall in the second quarter, with the national decline much steeper than that of the Ocean State. But employment growth proved better than expected in the third quarter, with wage increases also helping fight back against inflationary price hikes, 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.
While manufacturing activity fell slightly from the second quarter as inventory management became a new issue, the non-manufacturing index which includes the service sector increased.
Together with growth reported from Citizens commercial banking clients, the measurements “paint a robust picture of economic activity,” according to Citizens.
“With stubbornly high inflation, the outlook for interest-rate hikes remains a key focus,” Merlis said in a statement. “Still, the pent-up demand from the COVID pandemic seems to keep fueling activity at a high level, as the broader trend across the last eight quarters indicates. While the bond market continues to issue recessionary warnings, the prevailing job security was a key source of support during the quarter.”
Nancy Lavin is a PBN staff writer. You may reach her at Lavin@PBN.com.
