Banker optimism grows but remains stunted

Community bankers are more optimistic about the direction of the economy during the third quarter of this year even as many still see a recession as inevitable, according to an Oct. 10 report from the Conference of State Bank Supervisors.

The Community Banker Sentiment Index increased 13 points to 86, which was the highest reading since 91 a year ago. Any reading above 100 is considered positive, while any reading below 100 is negative.

 “It is encouraging to see a sharp rebound in the CBSI as community bankers continue to navigate the effects of higher interest rates that have stressed their net interest margins, squeezed liquidity positions and challenged valuations in their securities portfolios,” said CSBS Chief Economist Tom Siems. 

Eighty-seven percent of community bankers said the economy is either entering a recession or soon will, down from 95 percent last quarter. At a reading of only 23, the regulatory burden index was the lowest of the seven measured by CSBS. The outlook for future business conditions increased 16 points but remained low at 59.  

After three straight quarterly declines, the index for profitability increased 10 points to 78, which is still 43 points below its year-ago reading. The monetary policy index increased 21 points to 54 as respondents still expect the Federal Reserve’s rate hikes to negatively impact market conditions. 

The lack of business confidence was also reflected in Creighton University’s September Mid-America Manufacturing Index of supply managers. Though the index increased to 52.5, indicating expansion for the first time in three months, negative sentiments continued as regional manufacturing weakened over the past year. The index for business confidence increased three points to a still-low 29.6 as nearly a third of supply managers expect a recession to strike early next year.