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The Citizen's Business Index moderates from the peak in the first quarter

Vermont Business Magazine Citizens announced Friday that the national Citizens Business Conditions Index (CBCI) fell to 52.9 in the second quarter of 2022. This was down from an eight-year peak of 59.5 at the end of the first quarter, but remained above 50 for the seventh consecutive quarter. , indicating the continued growth of the business. Citizens has bank branches throughout Vermont.

Business activity remains healthy, but has clearly cooled since last quarter. This may reflect the return of the economy to more sustainable levels. Alternatively, it may indicate that the situation could get worse. The consumer price index continued its upward trend throughout the quarter, reaching an annualized rate of 9.1% in its June report. The Federal Reserve (Fed) raised interest rates twice during the quarter. The Treasury market signaled a recession as the spread between 2-year and 10-year bond yields fell below zero. Consumer sentiment has reached new lows. Still, spending remained stable as the demand boost from COVID-19 restrictions continued to drive economic activity.

“We are seeing some reversals in the environment. The level of concern is high, but the individual outlook is still positive,” said Eric Merlis, Managing Director of Global Markets at Citizens. increase. “Businesses are still growing and maintaining positive momentum, and consumers are showing resilience. We see the market trying to adjust expectations on these conflicting signals.”

Citizens announced on Friday that its latest Citizens Business Conditions Index (CBCI) VT data decreased from the previous quarter (see table).

Three of the five components of the index were additive in the second quarter, another sign of slowing activity after five of the five were positive in the first quarter. Both the Institute for Supply Management’s manufacturing and non-manufacturing indices were on an upward trend. However, from Q1 onwards, it also shows easing. The manufacturing index peaked around the first quarter of 2021 as the COVID rebound kicked in. The non-manufacturing index peaked in Q4 2021.

The index shows continued strength in proprietary trading for banks’ commercial banking customers, another fundamental component of the CBCI. On the other hand, new business formation applications declined during the quarter, exacerbating the CBCI and indicating a temporary suspension from Q1.

On the other hand, employment trends were neutral during this period. This is especially true at a time when growth is slowing and fears of a recession are rising. After an unexpected GDP contraction in the first quarter, a contraction in the second quarter could signal a recession, by the standard definition. A typical recession is accompanied by a weakening labor market and rising unemployment, but in an environment where the job market is already facing labor shortages, the scenario could play out differently. If the US experiences a “jobs-filled” slowdown, consumer activity could remain more supportive than a traditional recession.

Although the trajectory of inflation remains uncertain, this level of business activity could prove sustainable. The inflation outlook could ease gradually as policymakers continue to tighten monetary policy and pressures on supply chains ease.

“Given the current market volatility and the Fed’s efforts to contain inflation, the decline from last quarter’s peak is not surprising,” Merlis added. “Business activity may be at a sustainable level, but there are still headwinds that can hold back activity.”

The index utilizes public information and proprietary company data to develop a unique view of business conditions across the country. Index values ​​above 50 indicate expansion and indicate positive business activity in the coming quarter. More information on this quarter’s index can be found here.

prepare the company for the economic cycle

All businesses face challenges and opportunities in their business life cycle, but most businesses have several strategies to consider when faced with an economic slowdown or recession.

Most companies focused on slimming down during the pandemic, and many raised excess capital to help maintain liquidity.

Many mid-market and middle-market companies are now in a stronger position as they face another economic cycle, but business leaders should consider steps to curb inflationary pressures in preparation for further rate hikes. I have.

Here are five suggestions from Steve Woods, Executive Vice President and Head of Corporate Banking.

  • Diversification of revenue sources

Diversifying your income stream can help stabilize your cash flow during a downturn. One of the best ways to diversify your revenue streams is through mergers or acquisitions. Look for targets that act as effective hedges in the event of market turmoil.

  • Check your current cash flow

A cash flow review should at least go back through the pandemic to demonstrate the company’s resilience and provide you and your financial partners with an important view of potential hurdles.

  • Fix costs where possible

Hedging solutions help provide certainty in an environment of volatile interest rates and foreign exchange rates. Commodity hedging can also lock in prices as a hedge against inflation.

  • Distinguish between expense types

Maintenance costs are the costs that the company spends just to maintain the status quo. Growth costs are new capital expenditures that specifically lead to increased revenues or expanded margins.

  • Adopt an automated payment solution

Reviewing financial processes and procedures such as invoicing and fine-tuning areas for improvement can streamline operations and avoid unnecessary costs.

A wide range of solutions exist to automate and time payments to maximize a company’s cash flow.

Nationally, the index fell to 52.9 in the second quarter of 2022, down from an eight-year peak of 59.5 at the end of the first quarter, but remained above 50 for the seventh consecutive quarter, shows the continued growth of Business activity remains healthy, but has clearly cooled since last quarter.

Previously, the Treasury market signaled a recession as the spread between 2-year and 10-year bond yields fell below zero. Consumer sentiment has reached new lows. Still, spending remained stable as the demand boost from COVID-19 restrictions continued to drive economic activity. Today, the Federal Reserve may be expected to continue its campaign against inflation by aggressively raising interest rates at its meetings. Tomorrow could bring GDP news suggesting the US economy contracted for the second straight quarter. Combined with this regional index, the economy could return to more sustainable levels or worsen.

July 29, 2022.Providence, Rhode Island – Citizens Bank

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