July 15, 2019 – Although chief executives continue to be upbeat about the economy, their confidence levels have waned in recent months. In its most recent report, the Conference Board’s “Measure of CEO Confidence” was unchanged at 43 in the second quarter (a reading of more than 50 points reflects more positive than negative responses).
“CEO confidence was unchanged in Q2, and remains at a moderately pessimistic level,” said Lynn Franco, senior director of economic indicators at the Conference Board. “CEOs’ expectations for growth prospects in mature and emerging economies remain subdued, with no pickup anticipated in the short-term. CEOs’ profit expectations have weakened compared to last year, with trade and tariff uncertainties and signs of a slowing global economy the likely causes of the deterioration.”
CEOs remained moderately pessimistic about current economic conditions, with 13 percent saying conditions are better compared to six months ago, down slightly from 14 percent last quarter. However, only 42 percent said conditions are worse, down from 46 percent in the first quarter. CEOs were less negative about current conditions in their own industries compared to six months ago. Currently, 21 percent said conditions are better, up from 12 percent last quarter.
Looking ahead, CEOs’ expectations regarding the economic outlook also remained relatively pessimistic. About 13 percent anticipated that economic conditions will improve over the next six months, compared with 14 percent in the first quarter. Meanwhile, 44 percent said they expect economic conditions will worsen, up from 42 percent last quarter. CEOs’ expectations regarding short-term prospects in their own industries over the next six months were somewhat more pessimistic. Only 17 percent said they anticipate an improvement in conditions, down from 19 percent last quarter.
Global Outlook Still Pessimistic
The Conference Board report also found that CEOs’ assessment of current global conditions remained negative. Sentiment about current conditions declined further for the US. Europe and China saw an uptick, but overall, sentiment was still very downbeat. Sentiment for Japan and Brazil remained relatively neutral for both countries, though Japan saw an uptick. Sentiment regarding current conditions in India improved and were the most favorable.
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Looking ahead, CEOs are still pessimistic about global growth prospects. India, however, remains an exception with short-term expectations improving marginally. Growth expectations for Japan, Brazil and the US were moderately negative, while CEOs viewed growth prospects in Europe and China the least favorably.
Profit Expectations Declined Considerably Compared to 2018
In addition, CEOs remained generally optimistic about profit expectations for the next twelve months, though much less so than last year. Now, about 69 percent said they expect profits to increase, compared to 91 percent last year. Executives in the durables industries are the most optimistic, with 75 percent expecting profits to increase, followed closely by CEOs in the nondurables industries, at 70 percent. Close to six out of 10 CEOs in the service industries said they expect an increase in profits.
The Conference Board found that among chief executive officers who expected profits to rise, 43 percent said market/demand growth will be the primary driving force, down from 62 percent last year. One third cited cost reduction, up from only 15 percent in 2018. Price increase was cited by 18 percent of CEOs, followed by new technology (cited by 8 percent) as the primary source of improvement in profits.
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“I do think the decline in CEO confidence is an indicator that there remains unease among the nation’s corporate leaders that a protracted trade war — not only with China, but with Europe Canada, and Mexico — will most certainly impact economic growth, and quite possibly bring it to a halt sooner rather than later,” said Dale Jones, CEO of Diversified Search.
And tariffs matter, he said. “In my conversations with CEOs, there seems to still be a wait and see attitude, and a feeling that if the parties can actually be brought to the table to hammer out new trade agreements, it could end up being quite advantageous to the U.S.,” Mr. Jones said. “However, that is far from a done deal. CEO confidence is likely to further erode if some positive movement is not seen soon, particularly when it comes to the global economy, where the tumult over Brexit is weighing on investors. If there is one constant in the economy, it is that investors hate uncertainty more than anything else.”
Despite continued low unemployment and first quarter job creation, Connor Caitlin Talent Solutions, for one, is witnessing a slowdown in hiring in certain segments, said Michael Muczyk, managing partner of the Medina, OH search firm. “The paint and coatings segment has slowed due to several factors including; industry consolidation, domestic automotive manufacturing, and weather. Other segments remain strong for now.”
Worker Confidence Rising
American worker confidence is at its highest level in four years. Following a slight dip at the end of the last quarter, the national Worker Confidence Index (WCI) rose 3.6 points to 110.7 in its most recent quarter, reaching its highest level since the study’s inception. The Worker Confidence Index is a survey of U.S. workers from HRO Today Magazine and Yoh, the international talent and outsourcing company owned by Day & Zimmermann, which gauges workers’ perceptions of the four key aspects of worker confidence: the perceived likelihood of job loss, the perceived likelihood of a promotion, the perceived likelihood of a raise and the perceived overall trust in company leadership.
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Overall, the index grew from 107.1 to 110.7. This is the third consecutive year in which the WCI set a record for its highest score to date. Of the WCI’s four indexes, the job security index was the only index to report a quarterly decrease. The remaining three – likelihood of a promotion, likelihood of a raise and trust in company leadership indices – all increased. On a year-over-year basis, all four indices increased for only the third time in study history.
Americans’ perceived likelihood of a promotion saw the biggest jump. Perceived likelihood of a raise saw the second-largest. Perceived job security and trust in company leadership saw minor falls and rises, respectively.
“While companies can be satisfied knowing their current employees are content in their roles, it does provide significant challenges in recruiting,” said Kathleen King, senior vice president, enterprise solutions, Yoh. “In times of low unemployment when a majority of employees are confident in their jobs and futures, it becomes more difficult than ever to attract new talent and recruit workers away from competitors.”
“In order to retain and recruit high-performing, highly talented employees in today’s competitive market, organizations must take a proactive approach to recruiting and employee nurturing by augmenting their own recruiting and staffing efforts with talent partners who can help craft a recruiting strategy built for long term success,” she said.
Both men and women continue to feel more confident about getting a raise, with 36.5 percent of men and 25.8 percent of women anticipating a raise of at least three percent at their next review – leading to the highest recorded confidence in a raise since the study was created in 2015.
And while men continue to feel more confident in a promotion than women – a trend that has happened every quarter of the study – both genders felt more confident in a title change during the past quarter than they ever have in the history of the WCI. Respondents with annual incomes over $100,000 said they felt the most optimistic about the likelihood of promotion, with 29.1 percent believing a promotion was likely.
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; Stephen Sawicki, Managing Editor; and Andrew W. Mitchell, Managing Editor – Hunt Scanlon Media