CEO Confidence In U.S. Business Conditions Falls To Lowest Level Of 2018

Chief Executive’s October reading of CEO confidence in both the current and future business environment shows a marked continuation of the downtrend observed through most of the third quarter. CEOs now rank current conditions 7.46 out of 10 down from 7.63 in September (-2.2%) and 7.57 in January (-1.5%). More troubling, their outlook for future conditions is now 7.00 out of 10, down sharply from 7.62 in January, a drop of 8.1%. The January, 2018 rating was the highest level for the index since July, 2004.

Every month, Chief Executive tracks confidence in current and future business environments, based on CEOs’ observations of various economic components. And while 2018 started on a high note, with both indices reaching levels unseen since mid-2004—fueled by a new corporate tax plan and robust fundamentals—by the end of the first quarter, confidence was shaken by tariffs announcements and failing foreign trade negotiations. With two exceptions in May and August, the forward-looking Index has since maintained a downward slope.

While the Index remains in “very good” territory according to the rating scale, and well above where it has been in recent years, CEOs tell Chief Executive that their concerns for the U.S. economy are growing. In addition to the impact of tariffs, which many say are only just starting to materialize, CEOs say they are beginning to fear a change in the weather, with rising inflation and rising interest rates adding to concerns.

“The [current] business cycle has been the longest expansion in history, so it’s bound to take a breather,” said the founder of a small financial services firm.

“Potential slowdown, if not a recession, next year,” said the CEO of a small professional services firm when asked why he rated future business conditions as “weak,” at 4 out of 10. “[We’re] just starting to feel the impact of the tariffs now. Customers are looking at higher raw material costs and adjusting their 2019 plans.” As a result, he expects both profits and capital expenditures to be down by this time next year, but he anticipates revenues to hold up.

Nevertheless, the Index remains positive, supported by business leaders who say low unemployment, a strong economy, consumer confidence, lower taxes and fewer regulations are all playing in favor of American companies.

“America has gone back to work, we are building things, we are making things, we are excited about the future, lower taxes, fewer regulations, leadership from the White House is positive,” said the CEO of a mid-sized organization who rated the current environment a perfect 10/10 and future conditions 9 out of 10.

Overall, most CEOs continue to expect revenues and profits to increase over the next 12 months—81.7% and 73.0% respectively—while 58.2% and 66.2% anticipate increasing their number of employees and capital expenditures during the same period. These numbers are fairly in line with the year’s average.

In terms of investments, more than half of the CEOs in our survey reiterated that talent recruitment remains the most important investment they plan to make in the coming year. This comes as no surprise since CEOs have told us repeatedly this year that availability of talent was one of their biggest challenges in the current economy.

Inflation Fears Affecting Confidence Across Sizes and Sectors

Looking at confidence levels from an industry perspective, construction CEOs are the most optimistic, having rated their assessment of the future environment an 8 out of 10—up 14.3% since the same time last year and only surpassed this year by an 8.22 rating last May. The new tax plan, deregulation and low unemployment are the main reasons for their rating.

On the other end of the spectrum, professional services CEOs are now the least optimistic, with a forward-looking rating of 6.33—flat year over year, but by far their lowest level of 2018 after having started the year 14.9% higher. They say rising interest rates and inflation are their primary concerns for what lies ahead.

Nevertheless, it is CEOs in the high-tech and telecom industry who have suffered the largest YOY confidence drop, down 9.3% since last October. While some report enjoying a reduced federal regulatory burden, most say that the trade war with China is harming their projections.

When looking at confidence by company size, large company CEOs (revenues of more than $1 billion) are the most confident in the future, with a rating of 7.33 out of 10—although this still represents a drop of 10.9% since the beginning of the year. They are the only ones to have registered a gain over September data, up 4.7%. They say the USMCA agreement, sustained economic momentum, consumer confidence, low unemployment, and tax and regulatory relief are all reasons for this surge in confidence.

Small and mid-sized companies have both recorded, this month, their lowest level of 2018, at 6.82 and 7.03 respectively. This represents losses of 12.2% and 7.1% since January and of 2.4% and 2.7% month over month. While the small company Index is now almost flat since the same time last year, mid-sized company CEOs show an uptick of 4.9% since October 2017.

It is interesting to note that for the first time in more than a year, no small company CEO has rated their confidence a perfect 10. On average over that period, at least 6.6% would.

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.

Last month: CEO Confidence Remains Stable in September