Source: Chief Executive Research
After two months of consecutive increases in outlook due to the election results, CEOs’ forecast for business conditions 12 months in the future dipped to 6.9 out of 10 in January, from 7 out of 10 in December. Although this may seem negligible, this is only the fifth time that the index has dropped at the start of a year since we began fielding over 20 years ago. The last time was less than 1 percent in 2016.
Looking back at the impact of presidential inaugurations, we see no trend that the incoming of a new administration instigates a drop in confidence. For instance, the last time Trump took office, in January 2017, CEO optimism was up 2%. And even with Biden’s inauguration, in January 2021, optimism was also up, by 1%.
This time around, business leaders say they aren’t certain that two of the new administration’s priorities—namely, tariffs and immigration reform—will have a positive impact on business, at least according to the 149 CEOs polled January 14-16 as part of our CEO Confidence Index.
Still, our January reading of CEO Confidence is among the most optimistic since the start of 2022. Most CEOs are excited about the incoming administration’s focus on reducing taxes and regulations, as well as a renewed emphasis on American business, affirming the overall optimism CEOs feel about the administration, despite the slight caveat.
“I am anticipating conflicting forces. On one hand, continued reshoring initiatives will drive domestic investment, and a new administration who is promising deregulation are both causes to be optimistic,” says Dan Culbertson, president of Omni Technologies, an industrial manufacturer of plastic components. “Conversely, tariffs will be inflationary, causing bond markets to remain elevated increasing the cost of money, making investments more difficult to justify.”
CEO sentiment about the current state of business conditions also slipped, from 6.4 to 6.3 this month. However, 52 percent expect business conditions to improve, despite a drop from December’s 58 percent. That remains one of the highest such readings of CEO sentiment since early 2021.
“The uncertainty of the election caused a lot of business disruption. I think we will return to a more pro-business environment and new tax regulations, which will benefit small- to medium-sized businesses,” says James Cordova of Windes, a tax and audit-advisory firm.
“I think in the near-term tax cuts will help to offset the damage from tariffs and resulting increased inflation,” says Jack Prause of Cortina Leathers. “Also, global economies will continue to recover, which will provide a lift to the U.S. economy.”
Worth noting: This month an increased proportion of CEOs said they don’t know in what direction the economy will head and as a result, 29 percent expect unchanged business conditions, or a continued ambiance of uncertainty.
This month, revenue and profit forecasts continue to gain ground, while forecasts for increased capex and hiring claw back losses from last month.
The proportion of CEOs who forecast an increase in profits 12 months down the line is now at 76 percent, up 5 percent since December—the fourth consecutive increase and almost eclipsing 2021 levels when in-person commerce had a comeback.
Forecasts for revenue growth are up for the fifth consecutive month, with a whopping 84 percent of CEOs expecting boosted revenue a year from now.
The proportion of CEOs who project increases in capex is also back, at 56 percent, after a slip from 55 percent in November to 51 percent in December.
Similarly, the proportion of CEOs planning increases to their headcount clawed back losses from December and is back at 60 percent, from 52 percent.
However, the proportion planning cuts to hiring jumped from 8 percent in December to 12 percent this month. “We are not adding people until we have a feel for how Trump operates this time around,” says the CEO of a midsize industrial manufacturing firm.
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. For additional information about the Index and prior months data, visit ChiefExecutive.net/category/CEO-Confidence-Index/
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