Despite Political Uncertainty, Most CEOs Remain Optimistic About Business Climate For 2020

The failure to reach a deal with China is concerning, but overall, outlook remains positive, particularly among midsize and small-business CEOs.

Chief Executive’s latest reading of CEO confidence shows U.S. business leaders remain optimistic about what will transpire in the year ahead. They rate their confidence in the business environment one year from now a 6.6 out of 10—which is considered “good” to “very good” according to our 1-10 scale and in line with where it was back in January.

Many of the CEOs polled say they are focusing on the strength of the economy and consumer spending—not politics—to justify their positive outlook. Robust economic conditions, solid consumer demand, strong earnings, easy access to capital, low unemployment, wage growth. . .all, CEOs say, add up to an outstanding business climate—one they haven’t experienced in more than a decade.

Note: Chief Executive’s CEO Confidence Index is measured on a scale of 1-10. December poll had 228 responses.

“Economies will continue to expand,” says Andrew Ly, CEO and president of California-based Ly Brothers Corporation, who rates future conditions an 8 out of 10. “The Fed is aware of the damage if the economy is trending down too far. With the exception of the noise of the election ahead, the White House will want the trade deal to get done even [if] the President is playing hard ball. Two things he needs are, stock markets heading higher and the trade deal done to support that.”

This trust that the current state of disruption brought about by, namely, ongoing trade disputes and impeachment proceedings will get resolved sooner rather than later is something the majority of surveyed CEOs have been citing for months now when asked about the reasons behind their sustained positive outlook for 2020. In December, however, we observe a greater number of CEOs saying that the fact that a trade deal with China hasn’t yet been reached is becoming concerning.

“Our customers are not sure whether to invest in expanding or not with the uncertainty. We are seeing caution from our clients,” says the CEO of an upper-middle-market wholesale distribution company, who expects to decrease capex in the year ahead. “If the China deal and other trade issues go south or the election should slip to the Democratic Progressives, I think we will see a major slowdown of our customers’ growth plans, which will impact us.”

Greg Owens, CEO of Sherrill Manufacturing, suggests not everything should rely on Chinese trade and that U.S. business leaders should probably plan for an outcome where the U.S. does not reach a deal with China in the near term.

“There can be no trade deal with China that does not correct the fact that they are a non-market economy using every unfair practice available to ‘win the game,’” he says. “It is hard to imagine that they will change their ways, so a ‘trade deal’ is not possible. We need to stand firm and decouple from the existing unfair economic relationship. I believe we are doing so at the moment and am hopeful that we do not change course.”

Chief Executive’s monthly polls throughout 2019 confirm this cautionary stance taking place among the business community, with 51 percent of CEOs, on average, planning to increase headcount or capital expenditures in 2020, despite a great majority expecting their company’s revenues and profits to rise. In contrast, the year prior, 62 percent had planned to increase capex or headcount in 2019—a drop of 22 percent year over year, which CEOs attribute to the political climate.

Confidence Is Up Across Most Sectors and Sizes

When looking at confidence by sector, tech CEOs reported the highest level of optimism (7.3/10). Energy CEOs were the least confident in conditions for the future (5.6/10). While both agree tariffs are hurting their business, tech CEOs say continued global demand for new products is driving their positive forecast, overshadowing trade concerns.

Yet, on a year-over-year basis, it’s healthcare CEOs who are showing the biggest uptick in forward-looking confidence, up 18 percent since December 2018. Some say the passing of USMCA will be a great booster to the sector, alongside the usual suspects of economic indicators, including low unemployment, healthy liquidity levels and consumer confidence.

Among those whose confidence has declined the most, retail trade CEOs say trade is the overwhelming issue stunting their growth. The sector’s confidence is down 19 percent since the same time last year. Construction CEOs aren’t too far behind, with some of them saying they believe a recession is overdue.

Nevertheless, every sector remains in “good” to “very good” territory with respect to their outlook for 2020 business conditions.

The same is true when looking at confidence by company size, with our forward-looking index fluctuating between 5.8 and 6.8 out of 10. For small to mid-sized companies, those numbers are fairly in line with those from December 2018, although the YoY variation seems to be increasing with company size.

Many larger company CEOs say they are skeptical in the true strength of the U.S. economy, believing it is artificially inflated and that once rates begin to increase, we are on track for a downturn. Their upper-middle-market peers say that while they, too, share concerns with what will transpire in 2020, they believe things will improve before the end of the year—a stance many small company CEOs have also adopted, adding that less burdensome regulations and lower tax rates are sustaining their growth.

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.