Chief Executive’s November polling of 260 CEOs finds renewed confidence in the 2020 business landscape, as business leaders say the strength of the U.S. economy and stock market, alongside another rate cut by the Fed, are now eclipsing concerns about disruption in Washington.
After three months of stagnation at multi-year lows, CEOs’ confidence in business conditions over the coming year has rebounded to January levels, at 6.6 on our 1-10 rating scale. That is a 4 percent increase since the month prior and 7 percent higher than its August low, when confidence fell sharply due to the then-latest round of tariffs on Chinese goods.
In November, only 35 percent of CEOs cite tariffs as worrisome, as they say trade disputes have now become the new normal. Many also believe the upcoming election will put pressure on the current administration to bring a resolution to the trade conflict with China and to ensure both the economy and the markets remain strong—a backdrop they, however, fear will deteriorate rapidly if the Republican party does not keep the White House next November.
Note: Chief Executive’s CEO Confidence Index is measured on a scale of 1-10. November poll had 260 responses collected between Nov 5-10.
“The current administration of the U.S. will juice the economy due to the impending election,” says the CEO of a global talent management organization, who rates 2020 business conditions as “very good,” at 8 out of 10.
While several CEOs echoed this sentiment, many remain cautious as to what can transpire post-November 2020.
“The market continues to be good. Customers are talking about doing big projects next year. There is beginning to be concern, however, if the election swings away from Trump [about] what some of the larger target companies might do,” says the CEO of an upper-middle-market wholesale distribution company. He, nevertheless, rates the U.S. business environment an 8 out of 10 and expects both profits and revenues to increase by 10 to 20 percent in the year ahead.
Several other CEOs shared similar concerns should the Republican President not win a second term.
“If Trump loses the election,” says a CEO who considers the current climate to be very good for his company, “then I expect business conditions to get bad rather quickly. My rating would go to 4 [out of 10].”
“It depends upon outcome of upcoming election,” says the CEO of an upper-middle-market company, who rates the business environment a 6 out of 10. “It’s a downward slide if any one of the majority of Democratic candidates is elected.”
Speaking of Democratic candidates, 38 percent of surveyed CEOs cite Elizabeth Warren among the top three concerns keeping them up at night—ahead of trade and competition.
With respect to current business conditions, CEOs’ perception has also been improving since its slide in August—albeit slowly—and it is now at 6.9/10, near its July level but still 5 percent lower than where it started the year.
Despite the enthusiasm, the proportion of CEOs expecting to increase their capital expenditures over the next year remains low, at 47 percent, compared to 68 percent at the same time last year. Survey respondents say that while the Fed’s third rate cut at the end of October did not influence them to deploy more cash toward capital expenditures, some say it did motivate them to resume hiring. The proportion of CEOs expecting to add to their workforce over the next 12 months rose 2 percent in November, to 48 percent.
The proportion of CEOs expecting an increase in profits and revenues in 2020 remains flat, at 67 percent and 72 percent, respectively—with 20 percent expecting lower profits than the prior year.
Uncertainty Rattles CEOs Across Industries
A look at the data from a sector perspective shows CEOs across most industries have more optimism in the 2020 landscape compared to the month prior. Only Financial Services CEOs and, to a smaller degree, Consumer Manufacturing CEOs show a grimmer outlook than they did in October.
Financial Services CEOs say economic headwinds are their main concerns at this time, followed by the potential for major sector disruption depending on the outcome of the election. Nevertheless, the sector’s CEOs continue to rate the future environment as “good,” at 6.5 out of 10.
For Consumer Manufacturing CEOs, tariffs continue to play a role in their ability to conduct business at a competitive level, although they, too, rate the 2020 conditions as “good,” at 6.7 out of 10 on the back of a strong economy and a robust consumer segment.
“We have been growing consistently for five years,” says Greg Owens, co-founder and CEO of Serrill Manufacturing, a manufacturer of flatware in the United States. “I expect that trend to continue, if not accelerate, during an election year when American manufacturing jobs are in the spotlight.” He rates the business environment a 9 out of 10 and says his main challenges are recruiting and developing the right talent at a competitive pace.
Year-over-year, the industry breakdown shows mixed sentiments, with six sectors reporting increased optimism in the future and seven decreased confidence. Despite a 19 percent uptick in November, Transportation CEOs remain the least confident in the future for a third consecutive month, with a confidence rating now 23 percent behind its November 2018 level.
When looking at companies by size (in terms of revenues), only large corporation CEOs report a decline in their forward-looking confidence from the month prior, with a drop of 10 percent. They now rate the overall 2020 landscape as “weak,” at 5.7 out of 10, mostly based on the uncertainty that an election year brings.
Compared to 2018 levels, however, companies across all sizes are down from their November levels. CEOs say, once again, the fear of an economic slowdown, the upcoming Presidential election and unresolved trade disputes are driving their forecast.
In the end, the uncertainty of what comes next is keeping CEOs in a constant state of caution. One respondent sums up the general feeling of many others, saying: “I wasn’t sure how to answer. If a far left ‘democrat’ were to unseat the Republican, business conditions would ‘tank’. If the present administration were to prevail, business conditions would remain positive.”
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.