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CEO sentiment over the prospects of business in the U.S. continued to slide in September. Uncertainties relating to Covid-19 variants and the lack of skilled workers—or the availability of any workers at all—remain a concern for many, but our September reading of CEO sentiment shows growing frustration with Washington. A large number of CEOs surveyed say the current administration’s policies are hurting businesses and the overall U.S. economy—and could stall growth over the next 12 months.
Those are the key findings from Chief Executive’s latest poll of 491 U.S. CEOs, fielded September 7-8. CEOs’ assessment of current business conditions fell 3 percent this month, to 6.6 out of 10 on our 10-point scale—the lowest they’ve been since March.
Similarly, CEOs’ forecast for business conditions by this time next year declined by another percentage point, to 6.7 out of 10—expecting conditions to be only 1.5 percent better than it is today. That is nearly 8 percent lower than they had projected earlier this year, when the initial rounds of vaccination sparked hope that we would soon return to a sense of normalcy.
America’s business chiefs cite rising labor costs and availability, potential tax increases and increased regulations as some of the reasons for their declining rating. The growing focus on Washington is perhaps not surprising since half of the CEOs polled listed the economy as one of the issues most likely to influence the successful execution of their strategy in the year ahead—only preceded by labor costs and shortages (63%). In third place are Covid considerations, such as new variants, renewed mandates/restrictions, workplace safety, etc., (48%) followed by supply chain issues (40%).
“Economic growth in 2021 has benefitted substantially from federal and state fiscal stimulus, and the rebound from Covid-19-induced economic contraction in the first half of 2020. As stimulus is withdrawn, growth will slow,” says D Michael Wilson, president and CEO of Prince International, a large producer of engineered minerals and specialty chemicals based in Houston, Texas. He also believes growth will be impacted “by the ongoing struggle to find qualified workers [which] continues to impact our ability to meet demand. While widely understood to be an issue for small businesses, restaurants, and travel and leisure, skilled labor shortages are also significantly impacting manufacturing.”
Chris Matthews, CEO of family-owned manufacturer National Custom Hollow Metal Doors & Frames based in Little Rock, Arkansas, agrees that there are significant challenges for the manufacturing sector because, he says, “this administration is killing incentives in traditional manufacturing…unless you are in ‘green’ technologies.”
“The current administration seems to be oblivious to the current reality that most, if not all, domestic businesses are contending inflation and difficulty hiring. I don’t see this changing the next three years,” says John W. Gessert, president and CEO of American Plastic Toys.
“The success of Biden passing unfavorable tax policy is in my mind the one thing that could quickly derail our strong economic recovery,” says Jim Nelson, president of Parr Instrument Company, a manufacturer of laboratory instruments in Moline, Illinois.
“While our company has rebounded during the pandemic, I have noticed that with the news of the new surges in the Delta variant that clients are becoming reluctant to spend again. They are fearful of the unknown. Therefore, that could make the overall business environment weaker in 2022,” says Karen Cole, CEO of Assura, a cybersecurity services firm based in Richmond, Virginia.
For Dann H Bowman, president and CEO of Chino Commercial Bank in California, expectations that business conditions will worsen by this time next year are due to “the deterioration of productive efficiency,” he says. “When a large part of the working force is not producing goods and services, the result is reduced supply. This reduced supply constrains economic recovery. Throwing money at the problem only results in rapidly rising prices and monetary inflation; not an improved standard of living,” he says.
Matt Ashwood, executive chairman of BFC Solutions, says wage inflation and continuing supply chain issues are primarily why he foresees business conditions to fall to a 4 out of 10—or “weak” according to our 10-point scale. “Despite an increase of 25%+ in wages, we still can’t get enough workers to fill all of our positions,” he says.
Despite the challenges, 40 percent of the CEOs we polled now say they expect conditions to improve by next year, up slightly from August—a gain that’s largely due to the improving assessment of the most optimistic CEOs we polled.
Sharing their forecasts for their business, 79 and 68 percent of CEOs anticipate revenue and profits to increase, respectively, over the next 12 months—that is a 5 and 9 percent decline since August and the lowest levels seen in more than six months.
The proportion of CEOs planning to increase capital expenditures in the year ahead also declined, down three percentage points to 52 percent, while those expecting to add to their headcount rose 4 percent, to 65 percent.
Sector plays an important role in CEO sentiment in the current environment, and September data shows six industries with increasing optimism vs. nine with decreasing forecasts. Variations were, nonetheless, moderate for most—on both sides—except for retail, real estate and consumer manufacturing, where wide swings were observed.
After a steep decline last month, consumer manufacturing rebounded in September, clawing back the August losses (+14 percent). While CEOs in the sector remain concerned over several aspects of the economy, many say they are hopeful that by this time next year, supply chain issues will have been resolved and “the availability of labor willl have improved as government subsidies expire,” as one CEO in that space explained.
For retail and real estate CEOs, however, the outlook isn’t as rosy. Both sectors fell by double digits this month, as inflation and tax concerns and the fear of renewed shutdowns across the country spark worries.
Year over year, the data shows substantial variations across sectors most affected—positively and negatively—by the pandemic. Healthcare, pharma, retail and real estate are all down by large differences year-over-year, while travel/leisure and government/non-profit CEOs report large upswings in optimism. In both those sectors, the prospect of a return to in-person activities is fueling enthusiasm.
Forecasts by size are mainly flat across peer groups in September vs. August, with a slightly larger decline in confidence among upper-middle-market CEOs. Many say the recovery in 2021 has been strong for them so far, but they now expect it to slow, as Covid precautions are renewed across certain states.
On a year-over-year basis, small company CEOs report the lowest level of optimism, down 6 percent since last September. Some say the Great Resignation phenomenon, intensifying regulations and overall cost increases are stifling growth opportunities.
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. For additional information about the Index and prior months data, visit ChiefExecutive.net/category/CEO-Confidence-Index/
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