CEO confidence in the outlook for the economy continues to erode amid growing concerns about the unknown duration of the coronavirus crisis and inconsistent and confusing government restrictions on business nationwide, according to our latest read of chief executive sentiment.
At the same time, the rates of decline tapered versus our prior reading, and CEOs’ outlook for key indicators—hiring, revenues, capex and profits—appears to be bouncing back a bit after the unprecedented economic collapse brought on by the government response to the outbreak.
Chief Executive’s May CEO Confidence index finds the outlook for the business landscape 12 months from now down another 4 percent, adding to a 5 percent decline in April. Some of the of 301 CEOs we surveyed from May 5-7 say that despite the “flattening of the curve” and the belief that the economy will recover, the inconsistency of state governments in their reopening plans—with some opening now while others are delaying reopening until July—is hurting businesses by providing an unfair playing field.
“The issue is the pandemic. The economy is frozen. Once people are back to work and socializing, business conditions should recover quickly,” says Nathan Owen Rosenberg, founding partner of management consulting firm Insigniam. He rates current conditions as “poor” with a 2 out of 10 on our 1-10 scale but expects them to rebound to a 9 in “excellent” territory a year from now.
Rosenberg’s assessment of current conditions is now the norm. Ratings for the current business environment fell another 6 percent from April to May. That follows a historic 34 percent plunge last month. So far, the coronavirus crisis has caused CEO confidence to weaken by 43 percent since February.
CEOs cite a series of factors affecting their outlook for what lies ahead. On one end, they’re optimistic about the White House’s sense of urgency to restart the economy, pent-up demand, evolving business models and reduced cost structures, as well as low interest rates and new opportunities. “A large portion of businesses, both from small to giants, have the tools to return to the previous levels they were working at when the virus really hit. All they need is ‘a green light’ that will let them go,” says the CEO of a mid-sized healthcare company, who views current conditions as “weak” (3 out of 10) but forecasts them to turn around quickly to an 8 out of 10 in a year’s time.
On the other, they say instability caused by the looming election and political infighting that will ensue, high levels of corporate debt, the likelihood of resurgence of the virus, the cost of disconnecting business relationships from China and the unknown long-term effects of the crisis are among the issues that could negatively impact the recovery.
“There are too many variables in the macro environment to solidify a probability of a positive or negative market conditions a year from today,” says Clifford Smith, CEO of GlobalVetLink, a provider of online animal health software solutions. “Granted, states are beginning to transition to the ‘Next Normal,’ however, will personal and corporate balance sheets provide the energy to climb out of the trenches of the COVID-19 recession? Will people be comfortable engaging in group activities like airline travel, sport events, conferences and group leisure activities, or will we continue to have a form of social distancing?”
“I think different parts of the economy will perform differently,” says Bruce Levitt, CEO and president of Levitt-Safety Limited, a supplier of fire and life safety solutions. “Retail, travel, sports and leisure will remain challenged into 2021, and people may change their behaviors permanently. Others will show a quicker recovery.”
“Everyone wants a fast bounce-back, but the reality seems to be slower re-engagement with caution regarding (I) impact of current social distancing on how we interact with clients, (ii) minimizing potential impact of a fall outbreak of COVID-19 and (iii) what the new ‘normal’ will really look like across all sectors of our economy,” says Todd Carlisle, president of law firm Sirote & Permutt, P.C. “The slower pace of re-engagement may mean a more careful and deliberate path forward for many organizations, but one that may be slower to take hold. The winners will be the organizations that adapt wisely to this new reality.”
Overall Business Implications
Against all this uncertainty, the proportion of CEOs expecting next year’s revenues to be lower than they were the year prior remains at multi-year high: 63 percent in May and 69 percent in April, compared to an average of 17 percent in the months preceding the COVID-19 outbreak.
The proportion of those anticipating profits to go up, however, is starting to bounce back, with 32 percent in May vs 21 percent last month. This, nevertheless, remains far off the average of 71 percent pre-COVID.
A great number of CEOs are also projecting having a smaller workforce at this time next year (43 percent), and 51 percent are forecasting having to decrease capital expenditures when compared to the year prior.
The May data does show CEOs are beginning to taper their negative forecasts, with all four indicators pointing to a lower proportion of businesses anticipating decreases over the coming year—a trend we will continue to monitor as we emerge from this crisis.
The confidence level of Real Estate CEOs has increased 43 percent since last month, which some say is due to the amount of capital on the sidelines waiting to be deployed by real estate investors and the consumer’s motivation to return to normal.
At the other end of the spectrum, wholesale and non-profit CEOs are showing the greatest decline in confidence (-17 percent), followed closely by their pharma and retail peers (-14 and -13 percent, respectively).
“The weakness in the economy caused by the COVID epidemic will take a long time to overcome,” says the president of an upper-mid-sized retail/trade company. “Consumer spending is likely to remain depressed for a term measured in years.”
The chairman emeritus of a large wholesale/distribution company says it’s the lack of control over COVID-19 that risks impacting the recovery in his sector. “We have huge unemployment with no plan to repopulate offices and plants without contagion,” he says, expecting business to rebound, albeit slowly.
“The ‘new normal,’ whenever it arrives, is not going to be the old normal. As such there will be weakness in many sectors of our economy, and I believe at a level which will mute the ability of the economy overall to return to GDP levels we were experiencing prior to the pandemic,” says Tim Zimmerman, president of Mitchell Metal Products.
The picture is almost as mixed when looking at the year-over-year comparison, with financial services CEOs leading the list of those whose confidence has declined the most.
When looking at the differences among company size by annual revenues, it is interesting to observe that small company CEOs are now more confident in the future than they were in April—and the most confident group of the bunch. Some say they believe the virus is now being controlled and that there are signs the economy is already in the process of bouncing back.
“We’re starting to see some rebounds in advance planning and deals,” says the CEO of a small company in the media/PR/entertainment space.
“Businesses re-opening, and sales are returning to full former strength,” says the chairman of a marketing/advertising company.
Nevertheless, confidence is down across the board when looking at pre-COVID levels and where our leading indicator was at this time last year, with large companies having suffered the biggest decline.
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.