CEO Confidence Drops To Lowest Level Since 2016 Presidential Election

Chief Executive’s monthly reading of CEO confidence in business conditions fell sharply in December as the nation’s business leaders increasingly perceived that gathering economic and political headwinds are harming the current climate and would slow growth in 2019.

The result is a near-complete U-turn in our CEO Confidence Index to levels not seen since October, 2016, just a month before President Trump’s stunning election victory and the subsequent rally in CEO confidence that accompanied the GOP’s regulatory rollback and tax cut.

In our most recent monthly poll of 236 U.S. CEOs, scaled on a rating of 1-10, the downward trend in CEO confidence in conditions one year from now accelerated sharply, ending the year at with a rating of 6.4 out of 10. That’s a month-over-month drop of 7% versus November, 16% since the start of the year and 13% year-over-year.

CEO confidence in current business conditions also declined again in December, down 7% month-over-month to 7.2 out of 10. That level is 3% lower than the same time last year and 8% below its February peak.

CEOs we spoke to say a cooling economy, rising interest rates and uncertainty related to trade with China are the primary reasons for their increasing concern about 2019. Surveyed CEOs are also beginning to point to levels of corporate debt as a developing concern, particularly should the Fed continue to raise interest rates.

While CEOs tell us that an end to the trade war with China would likely fuel growth, few trust that the current 90-day agreement will end on a positive note. “China is not going to back off its position on technology transfers as that is the key to [its] long-term economic future,” said the CEO of a middle-market industrial manufacturing company. “This means that either Trump caves into China, or we will be back to a full-on trade war in 2019.” He rates current conditions a 5 out of 10 and future conditions a 3 out of 10 due to a laundry list of circumstances, including the Fed’s unwinding balance sheet, a Democrat-led House, elevated valuations and earnings growth that are likely to deteriorate due to the effects of the 2018 tax cuts evaporating.

A divided government in Washington is also a concern for many of our respondents. One manufacturing CEO said he anticipates a “complete political log jam” and a lack of clarity in Washington’s message to business leaders. “No leader will risk advancing his business with investment of resources,” he says. He rates current conditions a 9 out of 10 but future conditions a 4 out of 10.

Growing Aversion to Risk

This risk-averse sentiment is also evident in the number of CEOs who say they intend to increase capital expenditures in the year ahead. This month, 53% of CEOs surveyed said they would increase Capex in 2019—a low for the year, and down from 68% of those polled in November.

The proportion of CEOs now anticipating revenues to increase in 2019 also reached its lowest level of the year in December, continuing a four-month decline (74% December vs. 76% in November). Seven out of 10 (71%) nonetheless expect profits to increase, but this number has also been falling for the past four months.

The one area where CEOs still expect increases in the year ahead is in hiring: 57% said they plan to add to their workforce in 2019, compared to 54% last month.

Asked what will be most important to their strategy for growth in 2019, CEOs say rolling out new products and services (24%), workforce training and development (13%), and recruiting (13%) are top of mind.

Confidence Plunges Across All Sectors and Sizes

While certain industries continue to show some degree of confidence in the business conditions that will be in place by late 2019, giving a “good” to “very good” rating (7-8 and 5-6, respectively, on our 1-10 scale), others seem to be losing faith quickly, especially CEOs of companies in the transportation and financial services sectors. Their confidence ratings have dropped 29% and 22% respectively since the beginning of the year and are now on the edge of “weak.”

“Too much consumer debt, increasing local taxes and some inflation lessens disposable income,” writes the CEO of a large financial corporation who rates the current conditions a 5 out of 10 and the future a 4/10. Nevertheless, he expects revenues and profits to rise by up to 10% one year from now, although he doesn’t plan on adding to his workforce or increasing capex.

“Official talks of a recession in 2020 risk causing a recession by leading banks to reduce available credit,” adds Robert Franko, president and CEO of First Choice Bank, a mid-sized publicly traded company in Cerritos, California. For that reason, he downgraded his confidence level from a 10/10 in the current environment to a 5/10 one year from now.

The transportation executives we polled agree that interest rates, tariffs and inflation are affecting the 2019 outlook: “Tariffs [have] increased costs, and higher prices have slowed demand,” says a C-Suite member at a large transportation who expects revenues, profits, capex and headcount to decrease in the year ahead.

When looking at companies by revenue size, there isn’t much more optimism to be found. CEO confidence ratings across all revenue brackets reached their lowest levels of the year in December.

Large-company CEOs (more than $1 billion in revenue) downgraded their future outlook 3% since last month and 21% since the start of the year to 6.5 out of 10.

Upper middle market and mid-market company CEOs are also less confident, down 16% and 17% respectively since January and 12% and 16% month-over-month to 6.2/10 and 6.3/10, respectively.

Small company CEOs were the most optimistic of the bunch, at 6.7/10, but this nevertheless represents a decline of 3% from November and 14% since January.

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.