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Lehigh Valley business sentiment Dropped for the third quarter in a row

by Kristin Laudenslager Oct 31, 2019
KADAC-NewsDefault

The Greater LV Chamber of Commerce-Kamran Afshar survey of local businesses recorded its third drop in row in the local business sentiment Index in July.
For a little back ground, this is a quarterly survey of the Valley’s businesses that has been conducted since 1998.

The overall index has dropped in each of the last 3 quarters. The last time it rose was October 2018. The index of business sentiment and the overall confidence in the local economy in July dropped 6.4% below its January level. This now places the index 9.0% below its October 2018’s level.

Of the last three drops in the index, the April’s 5.9% drop was the largest. The July survey showed a slight drop with only two of the 4 main indicators in the red. One of the indicators that dropped was the index of actual hiring over the last 6 months which went down by 4.0% during the quarter. This, on top of two other large drops in the previous quarters, places the index of actual hiring 12.2% below where is was in October 2018, a significant decline. It should be noted that while the index of actual hiring, suffered a 12.2% drop in 9 months, it is still running strong. The index is just no longer in the “strong growth” range.

Another index with a large decline since October 2018 is the index of plans for future hiring. Despite recording a slight gain in July, it is still 11% below its October 2018 level.

The index for actual purchasing over last 6 months rose slightly in July, now putting it only 5.0% below last October’s level. Despite the drop from last year, the index is still trending in the expansionary range. This is the range that is historically associated with higher rates of economic growth.

It is interesting to note that purchasing plans for the future have been consistently dropping and are now 8.2% below last October level. This index is now trending below the expansion range for the Valley.

Businesses participating in the survey are experiencing a gradual drop in the rate of growth of their revenues. This index has been trending down since July 2017.

One of the leading indicators about the health of the economy is the Purchasing Manager’s Index (PMI). This index has been trending down since August 2018. In the year leading up to September 2019, the PMI dropped in nine out of the 12 months, including every single month since April 2019.

Now, with a full fledged trade war in the background, the economy appears to be moving toward a slowdown over the course of this year and next. The flattening and now inverted Term Structure of Interest Rates is usually a negative indicator for the future of the economy. While this may not be a forecast of a recession, it is a forecast of a slowing in the rate of growth in the US economy.