The Ritz Herald
© Marley White

Economic Optimism Among Small and Midsize Businesses Falls to Lowest Point Since 2009 in Vistage’s Q2 2019 CEO Confidence Index


Growing number of CEOs anticipate a slowdown, but still plan to expand their total workforce and expect increased profits

Published on June 28, 2019

Confidence in the economy among small and midsize business CEOs continues to decline, falling to 88.4 in Vistage’s Q2 2019 CEO Confidence Index. The mark is down from 91.6 in the previous quarter, and the current reading is at the lowest level in a decade, since 87.9 was recorded in Q4 of 2009. The falloff was driven by much less favorable assessments of the national economy, which tumbled by about 30% from last year’s index. Worse, 35% expected the national economy to worsen in the year ahead, the highest figure since Q4 of 2008 when 60% shared those sentiments at the height of the Great Recession.

“Damage done to the economy from the tariffs, the slowdown in job growth as well as heightened economic uncertainty has been substantial,” said Dr. Richard Curtin, research associate professor at the University of Michigan, who analyzed the data. “Despite these concerns, firms still held net favorable views that the Trump administration has helped their business [42% versus 26%].”

Pessimism continues to grow with only 13% of respondents expecting improved conditions in the year ahead and just 31% of all CEOs feeling economic conditions had recently improved. Just 54% anticipated rising profits and 64% expected increased revenues, down from last quarter’s 58% and 70%, and 62% and 78% year-over-year, respectively.

Hiring plans remain consistent with year-over-year data, with 56% of all firms planning to add new employees to their workforce. 70% rated retaining existing talent and 67% prioritized attracting qualified talent as “very important.”

“Despite concerns about the economy and slowing business expansion, small and midsize companies still report favorable prospects for their business, with nearly two-thirds — 64% — of CEOs expecting revenue gains and more than half anticipating profits to increase over the next 12 months,” said Joe Galvin, Vistage’s chief research officer.

Survey highlights include:

Pessimistic economic prospects

  • Less than one-third of all CEOs [31%] reported that economic conditions had recently improved, half of the 64% recorded a year ago.
  • Firms have expressed even greater pessimism about the outlook for the economy in the year ahead: Just 13% of CEOs expected improved conditions, unchanged from the prior two quarters and well below last year’s 32%.
  • While the majority [51%] expected the economy to remain stable, the proportion that actually anticipated a downturn rose to 35% in the latest survey, twice last year’s 17% and the highest level since late 2008, when negative prospects for the economy peaked at 60%.
  • While most of the Q2 survey data was collected before the threat of Mexican tariffs vanished, tariffs of 25% on nearly half of all imports from China remained in force // When directly asked about the expected impact of tariffs on their firms, 40% of all CEOs indicated negative consequences for their own business, compared with just 4% who reported positive impact.

Revenue and profit outlook

  • Increased revenues were expected by 64% of all firms in Q2, down from 70% last quarter and 78% last year, and the lowest percentage in nearly seven years.
  • Profit increases were anticipated by 54%, down from last quarter’s 58% and last year’s 62%, and the lowest since Trump entered office.
  • The impact of tariffs on profits may partially erase the benefits of Trump’s tax cuts for some firms.

Hiring and investment plans

  • Adding new employees to their total workforce was anticipated by 56% of all firms. Although only marginally below last quarter’s 59%, it was the lowest in nearly three years.
  • 64% said that they were boosting wages to attract qualified talent // The anticipated decline in the pace of hiring will slightly ease these wage pressures.
  • Planned increases in expenditures for new fixed investments were anticipated by 40%, barely below last quarter’s 41% and only slightly below last year’s 48%.
  • Importantly, few firms planned cutbacks in investment spending [13%], with most firms keeping the level of investment expenditures largely unchanged [46%].
    These small declines in planned investments and hiring are consistent with an expected slowdown in the pace of economic growth.

SOURCE Vistage
Finance Reporter