The results of our March poll of U.S. CEOs finds confidence in future business conditions beginning to show signs of fatigue, with a rating of 7.17 out of ten. That’s a drop of nearly half a point since the beginning of 2018 and a return to levels not seen since last spring, before the possibility of passing a corporate tax cut and repatriation incentives began to gain traction.
Our survey of 212 U.S. CEOs, fielded in early March, also found their view of current business conditions curbed, from 7.78 in February to 7.47 in March. This marks the second month in a row where CEOs have shown less confidence in the future than in the present—a situation we haven’t experienced since August 2016 when the then-approaching federal election was igniting harsh debate and high levels of uncertainty.
Once again, political division appears to be impacting confidence. Our polling finds CEOs deeply divided over president Trump’s most recent moves on trade, with about 52% saying they expect the tariffs to damage the U.S. economy in the short term, 24% saying they’ll be somewhat or very beneficial and just under 25% saying they won’t change anything.
Opinion about the long-term impact was more divided still, with 54% saying they would cause long-term damage and 38% saying it would be beneficial. Only 8% said they thought it would have no impact.
Perhaps most telling: Despite divisions over the tariffs, overall CEO confidence in the current administration’s ability to successfully renegotiate NAFTA or reenter the TPP is tepid, ranking 5.95 and 4.50 out of ten respectively.
But as many pointed out, the trade talks have only just begun and there is some belief among surveyed CEOs that the President’s stance on the global scene is pure bluff in an attempt to force change to former agreements.
“[It is] too early to tell if Trump is positioning and trying to send a message or is the little boy who cried wolf and other countries are going to teach him a lesson,” commented a CEO who says that while he doesn’t support the new tariffs, he believes they won’t change anything to the U.S. economy in the long run.
Sixty-five present said they thought Wall Street had overreacted to the tariff news.
Bullish, with a Hint of Apprehension
Many of the CEOs surveyed in March reiterated that availability of talent is the single most important influence to their planning, as a shortage of skilled workers could hinder their ability to execute their company’s growth and expansion plans.
And while the number of CEOs who forecast improvements in the year ahead remains indicative of a robust outlook—60% anticipate adding to their workforce, 82% expect an increase in revenues, 73% in profits, and 63% in capex—, it is the increasing number of CEOs predicting declines, month over month, that is sounding the warning bell, denoting what could be the beginning of a downward trend.
According to our data, 44% more CEOs now expect their company’s profits to have decreased one year from now, compared to the same time last year; a figure that jumps to 80% when analyzed on a year-to-date basis. The same can be said of their forecast for the number of employees (up 48% YTD, 0.32% YOY), capital expenditures (up 36% YTD, 15% YOY) and revenues (up 20% YTD, down 14% YOY), albeit to a lesser degree.
Perception Driven by Size, More than Industry
While a positive or negative reaction to the steel and aluminum tariffs may seem more obvious in certain industries, surprisingly even within peer groups opinions differ.
“Our business outlook was very good prior to the steel tariffs. Now it is approaching weak,” commented Scott Lewis, CEO and chairman of Optimus Industries, a mid-sized steel fabricator in Tulsa, Oklahoma. Lewis believes the tariffs will get more damaging as time runs on, although he doesn’t expect them to impair the global economy.
“We are in a tailwind for sure,” observed Utah Paperbox chairman Paul Ballard Keyser who says his subset of the industry is experiencing increased business amid a boost in available capital and low interest rates. In fact, he supports the tariffs and believes they will be very beneficial for the U.S. economy, in both the short and long run.
If consensus over the future trajectory of the economy appears out-of-reach among corporate leaders, some are choosing to adopt more of a wait-and-see attitude.
“The market is optimistic and strong. Corporate tax breaks will free up financial resources for investments and help secure strong employee-employer loyalty. Unemployment is low,” observed Richard A. Karwic, founder of RAK Consulting, a small company operating in the professional services industry. “Possible tariff war is the big question mark. Our relationships with trading partners may be at risk.” Nevertheless, he says he supports the tariffs and believes that while there may be repercussions in the short term, they ultimately won’t change anything in the long run.
Regardless of your stance, the overall data is evident and there are very few industries where CEOs are feeling more optimistic about the future than the present.
The decline in confidence is even more remarkable when looking at the data by company size, in revenue terms, with larger companies feeling the most pessimistic of the bunch.
It seems that while a great deal of CEOs agree that the economy remains prosperous and that conditions are accommodating for most businesses, many are nonetheless keeping a close eye at anything that develops, in fear of signs of a downtrend over the longer horizon.
“The market is still robust, but due to the political climate there is some caution starting to pop up,” added the CEO of an upper middle-sized wholesale/distribution company who expects revenues, profits, capex and headcount to increase one year from now, albeit at a rate of less than 10%.
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.