The Lehigh Valley’s Business Sentiment Index (BSI) experienced a sharp decline in 2022 as inflation surged. Although the pace of decline eased by late 2023 as inflation rates began to fall, the index remains on a downward trend. At 54, the BSI is down 5% for the year but still above 50, indicating that more businesses maintain a positive outlook than a negative one.

The BSI is based on a quarterly survey of businesses in the Valley conducted by the Greater Lehigh Valley Chamber of Commerce- Kamran Afshar since 1998.

While in a long-term upward trend, the index of plans for future purchases fell to 51.4 in October, marking a significant 8% drop and erasing all gains made earlier in the year. At this level, it is now below its October 2023 position. Although a slightly higher percentage of local businesses intend to increase their purchases, the average planned increase has noticeably diminished.

The index of past revenues, while 6% below its July level, is still up for the year. Thirty-three percent of the respondents reported higher revenues, while 29% saw their revenues shrink over the last 6 months. On average, however, revenues were down from their July level.

The index of past hiring is the only measure in our model to fall below 50 in October, indicating that more businesses laid off employees than hired over the past six months. At 47, this marks the second consecutive quarter the index has stayed below 50%. The percentage of local businesses that increased their employment has dropped to its lowest level in 4 years, while the percentage of those laying off employees rose to its highest level. This was reflected in total employment data, which showed a slight drop during the summer months.

Plans for future hiring is the only index in our model that, while down for the year, rose in October, as the percentage of businesses planning to increase employment was more than twice that of those planning to reduce theirs.

The index of purchases in the last six months has dropped for the second quarter in October, falling by 4% below the July level. While the percentage of businesses that increased their purchases was higher than those that reduced theirs, the average purchase amount has decreased.

The index of future revenues has been in a statistical tie for the last five quarters.  

The overall index has been falling for the last two years. The 2022 high inflation also impacted businesses, as their cost of hiring and other inputs started to rise. Of the four sectional indices in our model, all began to decline in late 2021. Since the beginning of this year, the index of revenues is the only index that has been rising, while the hiring index has been at its lowest since the Covid recession. Businesses have reduced their hiring primarily due to lack of availability, as the number of unemployed in the Valley is at its lowest level for this century.

The forward-looking indices score significantly higher than those reporting events in the last six months, indicating businesses feel much more optimistic about the future than in the past.