Citizens announced that the national Citizens Business Conditions Index™ (CBCI) reached 59.5 for the first quarter of 2022, up markedly from 54.4 at the end of 2021 and reaching its highest level since Citizens began tracking the data in 2014, suggesting that lessons learned by businesses during the pandemic coupled with strong consumer demand were a potent combination.

The CBCI has been in expansionary territory (above 50) for six consecutive quarters, but the latest value exceeds even the first “reopening rebounds” that emerged in early 2021 and signals that resilient businesses that streamlined operations during early waves of the pandemic were able to benefit from a super-charged post-Omicron bounce.

“Demand is still strong, leading to strong business conditions,” said Eric Merlis, managing director, Global Markets, Citizens. “However, inflation is a major concern. It’s not just a strong economy that’s driving it – the pressures from supply-chain backlogs and the invasion of Ukraine have aggravated the situation. It’s a critical moment for policymakers to contend with all of these issues.”

Positive indicators regarding business conditions are reaching new heights just as uncertainty escalates in a number of areas. Inflation continues to move higher, posting a year-over-year pace of 8.6% in March, the highest level since 1981. Multiple factors aggravated price pressure, including COVID’s continued hold on critical production pipelines, especially in China, and the invasion of Ukraine by Russia. Against this backdrop, the Federal Reserve implemented a 25-basis point rate hike last month in its first tightening measure of this business cycle and market expectations for future rate hikes adjusted even higher.

All five components of the Index were additive in the first quarter, an atypical scenario even in other periods of robust business activity. Both the manufacturing and non-manufacturing indexes from the Institute of Supply Management (ISM) posted expansionary levels even though their readings were down from the fourth quarter.

Employment levels also boosted the Index reading. Initial jobless claims ticked downward, and job openings continued to eclipse the number of job seekers. Meanwhile, applications for new business formation were also strong.

There was continued strength in business activity among Citizens’ corporate client base, the last component of the CBCI. All sectors moved higher during the first quarter with energy companies leading gains as commodity prices surged following Russia’s invasion of Ukraine. Oil prices peaked in early March and have been above pre-COVID levels since mid-2021. Basic materials companies also performed extremely well, as did health care companies.

Bolstered by healthy household balance sheets and steady incomes, consumer spending was robust during the first quarter. Sentiment is declining, however, as consumers are increasingly concerned over inflation and future economic growth. Wages have risen and could climb higher, but they are generally not keeping pace with higher gas, food and housing costs.

While the path of inflation is yet to be determined, this level of business activity could either prove to be sustainable, or it could start to moderate. As policymakers continue to remove monetary support, and if supply-chain pressures ease, the outlook for inflation could be for gradual moderation.

“While we have reached a new Index high the jury is out whether the Fed can engineer a soft landing and sustain the strong level of business conditions,” Merlis added.

The Index draws from public information and proprietary corporate data to establish a unique view of business conditions across the country. An index value greater than 50 indicates expansion and points to positive business activity for the next quarter.