Citizens announced its national Citizens Business Conditions Index (CBCI) rose to 53.9 in Q1/23, reflecting continued strength in the labor market, more new business openings and positive corporate revenue trends. The index dipped below 50 during Q4/22 and the bounce-back during Q1/23 signaled a return to positive business conditions.

The labor market has remained resilient despite aggressive Federal Reserve rate hikes aimed at slowing the economy to curb inflation. Citizens’ proprietary data on client revenue grew across industries during Q1, with consumer services and healthcare among the top sectors due to their ability to pass on rising costs to customers. The manufacturing sector slowed, as higher borrowing costs impacted expansion by limiting capital expenditures.

“The U.S. economy bounced back during the first quarter, and despite the disruption in the financial sector, there are several positive signs going forward, such as improving inflation measures and still-strong labor numbers,” Eric Merlis, managing director and co-head of global markets at Citizens, said. “Policy-makers are still trying to thread the needle amid heightened recession concern, but companies that have made it through the pandemic and recent headwinds continue to prove their resiliency.”

Relief from Inflation Surprises

The underlying components of the index showed improving dynamics in the business environment. Three of five components boosted the index level while one was neutral and one weighed on the reading.

The proprietary activity data of Citizens’ commercial banking clients, a key component of the index, was very strong across regions, suggesting that the conditions at middle-market and mid-corporate businesses remained positive. The ISM non-manufacturing component grew, as consumers spent more on services and companies in these sectors were more able to pass on any increased costs.

New business applications increased, helping to boost the index. Employment trends, which are measured by initial jobless claims as an index component, were flat for the quarter, but nationally, the number of jobs gained overall was surprisingly high despite much-publicized corporate layoff announcements. The ISM manufacturing index decreased, as the sector is more sensitive to rising interest rates. The mix of trends captured a quarter in which demand for goods was lower while demand for services was steady amid broader employment stability.

“The first-quarter CBCI showed a business environment where activity has adjusted as interest rate hikes seem to be working to curb inflation,” Merlis said. “The still strong job market continued to be a source of support during the quarter.”