Chief Executive’s most recent reading of CEO confidence in current business conditions increased 1.5% month-over-month, to 7.3 out of 10 in February—a 2.2% uptick since December—while confidence in future conditions rose to 6.8/10 in February, from 6.6 in January and 6.4 in December. Despite having clawed back some of the fourth-quarter losses, both ratings remain down 6% and 10%, respectively, since the same time last year.
The CEOs we spoke with say their revived optimism stems from robust economic conditions, solid consumer demand, strong earnings, and easy access to capital. The Fed’s January decision to leave rates unchanged, assuaging fears over a significant economic slowdown and hopes of a resolve in the China-U.S. trade war are also helping our country’s business leaders regain confidence in the future.
“Economic conditions are excellent, significant reduction in regulations is a major benefit, and new trade agreements will make a dramatic difference,” says the CEO of a large transportation company who rates both current and future business conditions a perfect 10/10. He expects profits, revenues, capex and headcount to increase by more than 10% in 2019, saying it’s smarter for his business to make investments in new technology and capabilities at this time, rather than wait out the volatility.
“Consumer confidence, profitability of business in key sectors, delays of Fed interest rate increases, mostly pro-business attitude of government leaders and hope that we will find a way to resolve tariff issues with China,” says the CEO of an upper middle-market financial services firm when asked to explain his “very good” confidence rating of current business conditions. He rates his confidence in future conditions lower, though, at 6 out of 10.
Indeed, for many, Washington’s dysfunctional politics continue to distract from strategy, and CEOs’ confidence in future business conditions remains well below the level it had achieved the same time last year (7.6/10). Concerns include government shutdowns, a reversal of the pro-business reforms enacted during the past two years, labor shortages, tariffs, potential interest rate increases by the Fed and an uncertain economic outlook.
“The underlying economy is strong and can get even stronger,” says a small marketing company CEO based in Chicago, IL. “However, U.S. political uncertainty, future potential government shutdowns, Federal Reserve policy uncertainty and unresolved trade disputes each pose risk, causing companies to be cautious short-term.”
Against this outlook, the proportion of CEOs expecting revenues to rise over the next 12 months has increased from 74% in December to 79% in February. Similarly, more CEOs are also forecasting an increase in both capital expenditures (from 53% in December to 62% in February) and profits (from 71% to 74%).
The only measure that is down since December is the number of CEOs expecting to add to their workforce in 2019 (56% vs. 57%). And while CEOs have been voicing their struggles with finding employees in recent years, when asked about the biggest obstacle to driving their businesses forward in today’s climate, half (51%) of CEOs said the regulatory environment, ahead of the scarcity or lack of qualified talent (28%).
When looking at CEO confidence in future business conditions by industry, most sectors regained some of the previously-lost ground in February. Only wholesale and construction CEOs have been registering small declines in confidence since December. Interestingly, despite that slump, construction CEOs remain the most optimistic for a second consecutive month.
Last month, we began observing a disconnect between mid-sized companies and their small and large counterparts. At the time, the difference between the most and least optimistic groups was 13%. This month, the gap has narrowed by half, but at 7%, it is nevertheless a considerable margin and one we will continue to monitor.
CEOs across companies of all sizes are showing increased confidence in the future when compared to December levels.
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 corporate 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. The results are used as key indicators by media outlets throughout the world.