CEO Confidence Up Sharply Heading into Q4

CEOs’ assessment of current conditions rebounds, while outlook for future conditions improves moderately

On Oct 20, 2020

The Conference Board Measure of CEO Confidence in collaboration with the Business Council rose sharply in the final month of Q3, after a moderate increase in the first month of Q3. The measure stands at 64, up from 45. (A reading above 50 points reflects more positive than negative responses.)

Capital spending plans improved, with 25%of CEOs anticipating increased spending over the next 12 months, up from only 15% earlier in the quarter. Moreover, 36% foresaw upward revisions in capital spending beyond the next 12 months. The employment picture was more mixed: Hiring plans cooled, and the potential for layoffs remained, with one-third of CEOs saying they anticipate reducing their workforce over the next 12 months. Slower economic growth and demand translated into smaller wage gains and potential pay cuts, with 21%of CEOs foreseeing no increase in their employees’ wages and 5% saying they may reduce wages. However, expectations were that this is temporary, and wages will be on a much better trajectory beyond the next 12 months.

“CEOs entered Q4 significantly more upbeat than they were earlier this year,” said Dana Peterson, chief economist of the Conference Board. “Notably, talent shortages eased in the wake of COVID-19 and nearly two-thirds of business leaders said they anticipated little, if any, problems with attracting qualified workers. Nonetheless, uncertainty around the pandemic—and its aftermath—remains a risk to Q4’s newfound optimism as we enter 2021.”

CEOs were asked to predict the pandemic’s most important long-term impacts. More than 8 out of 10 named accelerating digital transformation among the key legacies of COVID-19. Additionally, 48% of CEOs cited increased demand for transparency in communication and information-sharing across the organization, while 45% felt the need to rethink current business models.

“CEOs across industries continue to adapt to COVID-19’s new normal,” said Roger W. Ferguson, Jr., vice chairman of the Business Council and trustee of the Conference Board. “While Q4 saw a resurgence of optimism, leaders are also cognizant of—and planning for—what may be permanent shifts in consumer preferences and organizational expectations ahead.”

Current Conditions

CEOs’ assessment of general economic conditions improved significantly compared to the start of Q3:

• 70% of CEOs reported economic conditions were better compared to six months ago, up from 8%
• Conversely, only 21% say conditions are worse, down from 90%

CEOs also expressed greater optimism about conditions in their own industries compared to earlier in Q3:

• 69% of CEOs said conditions in their industries were better compared to six months ago, up from 17%
• 20 % of CEOs said conditions were worse, down from 76%

Future Conditions

By contrast, expectations about the short-term economic outlook have only moderately improved since the start of Q3:

• 64% of CEOs expected economic conditions to improve over the next six months, up from 62%
• 15% expected conditions to worsen, down from 17%

CEOs’ expectations regarding short-term prospects in their own industries have also turned more positive since the start of Q3:

• 65% of CEOs anticipated improved conditions in their industry, up from 60%
• 11% expected conditions to worsen, down from 17%

Capital Spending, Employment, Recruiting, and Wages

The survey also gauged CEOs’ expectations about four key actions their companies plan on taking over the next 12 months.

• Capital Spending: 37% of CEOs expected to reduce their capital budgets in the year ahead, while 25% anticipated increasing spending, and 38% expected no revision
• Employment: 34% expected a net reduction in their workforce, and another 34% expected no change
• Hiring Qualified People: 62% of CEOs expected little to no problems finding qualified workers, while just 11% expected widespread talent shortages or real hiring problems across several areas
• Wages: 21% of CEOs foresaw no increase in their employees’ wages and 5% said they may reduce wages

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