Chief Executive’s July reading of CEO Confidence in Current Business Conditions continued to slide in July, falling out of “very good” territory at 6.9 out of 10 on our 1-10 scale. This is the Index’s lowest level since October 2017, when a congressional standoff and the Fed’s interest rate strategy clouded optimism. Overall, confidence is now 4 percent lower than where it was in January and 9 percent behind July 2018.
CEO Confidence in Business Conditions 12 Months from Now also remained low for a second consecutive month, at 6.6/10. While this data reflects a slight uptick from last month’s sharp drop, it remains 7 percent behind where it was at this time last year.
The majority of the 255 CEOs we surveyed said they are no longer planning on increasing capital expenditures or headcount over the coming year. Only 42 percent now expect to increase their capital expenditures over the next 12 months, down from 53 percent last month—the lowest level since June 2016 (40 percent). And only 38 percent of CEOs anticipate adding to their workforce over the coming year, down from 50 percent in June and also the lowest level since the summer of 2016.
Chief Executive’s CEO Confidence Index is measured on a scale of 1-10. July poll had 255 responses.
“We’ve had an unprecedented run since 2009,” says Gary M. Rychley, president of industrial manufacturer FasTest, echoing the sentiments of many other CEOs we surveyed. “[But] trade wars and tariffs are putting a damper on C-Suite thinking.” He anticipates slowing capital expenditures and rates his confidence in future business conditions a 5 out of 10.
Nevertheless, 68 percent of CEOs say they continue to forecast increases in revenues, and 64 percent expect profits to rise over the coming year. While these numbers are in line with last month’s, they are also at their lowest levels since the third quarter of 2016.
Despite concerns caused by the ongoing trade war, the Fed’s rate strategy and the upcoming Presidential election, many CEOs say the current volatility is no cause for alarm.
“The current business conditions are very promising and could even become robust if there is an interest rate cut and a deal finalized with the Chinese (to mitigate the tariff battles) in the late third quarter,” says Scott Heim, president Middleby Corporation’s Ventless Cooking Solutions, a Russell 1000 company. He says an interest rate cut by the Fed would buoy corporate investments into 2020, “perhaps driving American productivity.”
“The economy is humming. China and the U.S. will resolve the trade dispute before year end, which will propel next year to new highs,” says the CEO and president of a large industrial manufacturer, who says that while tariffs have the biggest influence on his company’s investment short-term strategy, he is confident 2020 business conditions will be excellent; a perfect 10 out 10.
“Trade wars and tariffs have caused our industry to pause,” says David Cox, CEO of international manufacturer The Bradbury Group. “[But] this will all pass, and further capital investment will take hold.” He says he expects the market to cycle back up in Q1 2020 and, therefore, rates his future outlook a 10/10 as well, up from a rating of 6/10 for current conditions.
Confidence Remains Low Across Industries and Sizes
When looking at confidence by industry, CEOs from four sectors report feeling more confident in future business conditions than they did last month. The hopeful probability of a trade deal, along with a thriving labor market and low interest rates seem to be the driving forces behind this uptick in confidence. In the construction/engineering/mining industry, CEOs say the backlog of projects and new demand are also driving optimism.
When looking at CEO confidence in future business conditions by company size (revenues), all peer groups are showing an increase in optimism since last month, with the biggest increase coming from large companies. CEOs in that peer group say low unemployment, lower taxes and less regulation are driving their optimism.
Nevertheless, confidence levels remain low and have been below 7 out of 10 for all peer groups for nearly six months, an indication that our nation’s business leaders remain concerned about the uncertainty of what lies ahead.
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.