Ongoing concerns over tariffs, trade uncertainties and political instability didn’t have a major impact on CEO confidence in business conditions in September, as participants in Chief Executive’s monthly poll say that the economy is currently strong enough to support their companies’ growth through the disruptions.
The survey of 261 U.S.-based CEOs indeed shows confidence in current conditions at 7.63 out of 10, compared to 7.69 in August, and 7.11 out of 10 for conditions 12 months from now—compared to 7.14 the month prior. A ranking of 7 or 8 is considered “very good” on the CEO Confidence Index scale.
Strong customer demand, lending rates, lower taxes and high employment are some of the variables business leaders tell us help keep their confidence high for the time being. Nevertheless, the Index still lags its 2018 high of 7.78 (February) by 2%.
The forward-looking Index is also down from its peak of 7.62 in January 2018—a 7% decline—and the third-quarter ranking of 7.09 makes it the lowest quarterly level registered in almost two years, since the fourth quarter of 2016 (6.46).
The president of a mid-cap wholesale/distribution company who ranked his confidence in future conditions a 7 said the ongoing tariffs situation brought up inflation concerns, “otherwise I would have been more likely to choose 8 [out of 10].”
“The economy keeps getting stronger,” wrote Jim Riley, president and CEO of Laclede Chain Manufacturing Company, based in Fenton, Missouri, “but Trump is attacking imports, [while] interest rates are still going up, deficit spending continues and Washington keeps pushing back.” Nevertheless, Riley is anticipating Laclede Chain’s profitability to increase by more than 20% within the next 12 months as he plans to increase capex and his workforce by up to 10% respectively.
Overall, 83% of CEOs expect revenues to rise by next year, compared with 77% who called for that scenario last month. The number of those who anticipate profits to increase has also gone up, from 70% in August to 75% in September. None, however, have adjusted their spending predictions upward with respect to hiring additional employees or increasing capital expenditures—both of those numbers remain on par with August figures with six CEOs out of 10 expecting them to rise.
Confidence from financial services
From an industry perspective, the construction/engineering/mining sector ranked the most confident in future business conditions, with 7.87 out of 10, even though many of its CEOs disagree on new policies coming out of Washington. Indeed, while some explained their below-average ranking by voicing their concerns over President Trump’s leadership and economic policies, along with what they believe to be lack of investment in infrastructure, Dr. Barry Naft, president and CEO of Environment International LLC, ranked his confidence level a perfect 10 out of 10. Naft attributes this to “lower taxes, less regulations, repatriation of assets [and a] more favorable balance of trade.”
Year-over-year, however, it’s the financial services sector that has experienced the highest increase in confidence. Many of its CEOs tell Chief Executive their optimism is mainly due to low unemployment, high consumer confidence, fewer regulations and what they believe will be stronger trade relations in the future.
“Foreign corporations were put on a level playing field with American corporations,” wrote the president and CEO of a company with revenues in excess of $1 billion. And while he doesn’t anticipate profits to change within the next 12 months, he says company revenues should rise by up to 10%.
John Tisdale Jr., president and CEO of Westgate Development, a real estate developer based in Alabama, says there is bound to be industry and consumer adjustments over time, but he says they will level out. “Recent changes affecting manufacturing, retailers and consumers such as tariffs, technology and online retail shopping trends will become better defined and part of strategic business plans instead of another roadblock,” he says.
When looking at rankings by company revenue, small companies’ confidence in future conditions is on par with that of larger corporations, at 6.99 and 7.00 out of 10 respectively. Yet, this ranking for large companies marks a drop of 8% since last month and of 2% since the same time last year.
CEOs in our survey were divided on the pros and cons of the current administration’s economic policies, with many listing tariffs and trade uncertainties as the main reason for their downgrade. Others said the lower corporate tax rate is driving increased capital investment and giving them the ability to pass on price increases for the first time in several years.
Meanwhile, a C-Suite executive at a large pharmaceutical firm says there are other significant concerns to consider, particularly with respect to the pace of the transition to a new digital economy. “We talk a lot, but [there isn’t] much transformation in our economy’s fundamental approach,” he writes.
In other size ranges, despite showing an increase in confidence year over year and month over month—except for small companies, which lost 2% since August—it bears noting that September marked their lowest confidence level of 2017 (except for small companies for which the September 2017 ranking was the second lowest on record that year).
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.
Read more: CEO Confidence Ticks Up In August