As Economy Reopens In June, CEO Confidence Inches Up

A nationwide survey of CEOs conducted June 2-3 shows CEOs are growing more optimistic about business conditions over the coming months. But uncertainty remains. 

The reopening of businesses across nation is sparking a resurgence in CEO optimism, with business leaders across the country feeling an increasing confidence in both current and future economic conditions—as well as their ability to grow revenue, hire employees and spend on their companies.

Confidence in current business conditions jumped 14 percent in the first few days of June versus May, according to Chief Executive’s CEO Confidence Index, and CEO confidence in business conditions a year from now rose 2 percent over the prior month. CEOs we talked to attribute the growing optimism to the reopening of the economy, interest rates being at an all-time low, order backlogs and revitalized consumer demand across many sectors.

The reading of business conditions a year from now is back where it was at this time last year, at 6.5 out of 10 on our 1-10 scale. Nevertheless, it remains 7 percent below its peak in February, before the onset of the Covid-19 crisis. Our reading of current business conditions remains in “weak” territory, at 4.6 out of 10, according to our scale, down 34 percent from where it began the year. CEOs say their optimism is being tempered by concerns over a potential second wave of Covid-19, social unrest, the presidential election and spiking unemployment. One respondent summed up the general sentiment: “Can’t be worse than the last two months, but there is still some uncertainty.”

The survey of 240 U.S. CEOs across a range of industries and states, was conducted June 2-3.

Most CEOs we talked to remain concerned about how long it will take the U.S. economy to fully recover. Many seem in agreement that a return to pre-Covid highs isn’t likely for some time, particularly in an election year with a potential second wave of the virus looming, they say.

“I think there will be some significant hangover to the economic pause driven by Covid-19, which has affected virtually every sector of the economy,” says Marc S. Rowland, healthcare practice leader of architecture firm TMPartners, PLLC. “My concern is that the recovery will be slow for the next 12-18 months.” He says most of the firm’s clients have slowed or delayed capital expenditures over the next year to 18 months.

“Covid-19 will continue to grip the country in one way or the other,” says Charles Francis, president and CEO of a small professional services firm operating in the Midwest. “Even if a vaccine is discovered, it will take months to get through clinical trials with no guarantee of success. Then, once we have it, we’ll have to go through mass production and distribution. This coupled with other economic challenges such as high unemployment as a result of Covid-19 and the current civil unrest will continue to sow doubt in the business community.”

Tim Zimmerman, president of Mitchell Metal Products, agrees it will be some time before things are back to normal: “If a second wave of Covid results in re-closing of major portions of the world economy, I believe it will be very difficult to avoid a long-term economic downturn,” he says, adding that he believes the odds of a second wave are very high. “It will likely be 2022 before damage inflicted on our society is no longer impacting our ability to grow the economy.”

“Very unsure about the billions of dollars in stranded assets (airliners, rental cars, hotel space, restaurants, commercial office space, etc.) and how long it will take these industries to absorb the shock and get back on their feet,” says Wes Stowers, CEO of upper-mid-size Stowers Machinery Corporation. “Also, total uncertainty of November elections.”

“In my opinion, we’re in the beginning of a ‘global’ recession,” says Barry Deutsch, CEO of The Deutsch Group. “And to make matters even worse, this is election season.”

Business Implications

With government restrictions easing, three-quarters of polled CEOs say their business is now fully operational; 31 percent of which are back on site and no longer working remotely. Only 13 percent say they are still operating at less than 50 percent capacity.

This “back to work” mode for the great majority of respondents may help explain the rising proportion of CEOs who are forecasting increases in profits and revenues for the year ahead: 37 and 40 percent, respectively, compared to 32 percent for both last month.

We see a similar trend when looking at the proportion of CEOs who anticipate increases in hiring and capital expenditures over the next 12 months. Overall, in June, 26 percent of polled CEOs are anticipating adding to both their workforce and capex. That reflects an increase of 26 and 16 percent, respectively, from the month prior.

We had noted last month that the data was pointing to a tapering of negative forecasts across all four indicators (revenue, profit, headcount and capex), as fewer CEOs reported anticipating decreases over the coming year than the proportion recorded in April. The June data highlights a marked continuation of this trend, as governments continue to lift restrictions and more and more companies—and industries—reopen. We will continue to monitor this trend.

Sector View

If optimism is increasing among CEOs in general, there remain certain industries where the forecast isn’t as rosy, according to the June polling data. For instance, Healthcare CEOs, who had experienced an 18 percent uptick in confidence in May, are now the second-least confident sector. Similarly, Real Estate CEOs, who also had registered a sizeable increase in confidence last month (a spectacular +43 percent), have now given 12 of those percentage points back.

The majority of sectors, however, are either flat or turning positive, with Transportation CEOs leading the charge (+21 percent).

“I believe as the economy reopens and, hopefully, millions get back to work, our business will do better,” says Richard E. Durst, president and CEO of Arctic Express, an Ohio-based refrigerated trucking company. “We haul refrigerated and frozen foods from manufacturers to grocery DC’s, and folks have to eat, so we should benefit.” He rates his outlook for the next 12 months a 7 out of 10.

The picture on a year-over-year basis is similar, with most sector CEOs gaining confidence in the future.

When looking at CEO confidence by company size (by annual revenues), the data doesn’t reveal as broad variations as those observed by sector—an indication that the current environment is affecting small, mid and large companies alike.

Nevertheless, large companies remain the least optimistic in future business conditions. Among the factors they cite as reasons for their decreasing optimism are concerns over a change in administration that would lead to tax increases, new regulations and the potential withdrawal of Fed support.

For small companies, a slower-than-anticipated reopening and fears of a second wave of the coronavirus are among the reasons cited for the slight drop in confidence.

About the CEO Confidence Index

The CEO Confidence Index is America’s largest monthly survey of chief executives. Each month, Chief Executive surveys CEOs across America, at organizations of all types and sizes, to compile our CEO Confidence Index data. The Index tracks confidence in current and future business environments, based on CEOs’ observations of various economic and business components.