Despite Sharp Fall in Overall Confidence, Some Optimism May Be Emerging
Amid the fallout from COVID-19, confidence among US CEOs has declined sharply. The Conference Board Measure of CEO Confidence™ decreased from 43 in the fourth quarter of 2019 to 36 in the first quarter of 2020. In addition, a follow-up survey from late March to early April showed a further decline to 34. (A reading of more than 50 points reflects more positive than negative responses).
“In late March, CEO Confidence declined to levels not seen since the height of the Great Recession. The sharp fall was driven by a dramatic deterioration in sentiment about the current state of the economy,” said Lynn Franco, Senior Director of Economic Indicators and Surveys at The Conference Board. “So it comes as no surprise that more than 80 percent of these executives said COVID-19 has substantially impacted their business.”
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“Despite the overall decline in confidence and negativity about the present situation, by early April CEOs felt less pessimistic about the short-term outlook,” said Bart van Ark, Chief Economist at The Conference Board. “This suggests that while CEOs see brighter days ahead, they also expect to experience major consequences from the current crisis. For example, workers, profits, sales, and investment activity will all take a hit, and such impacts could endure post-crisis.”
A Stark Shift in Sentiment
The Conference Board surveyed CEOs during two timeframes. A comparison reveals a striking shift in attitudes:
CEOs’ pessimism soars: the current state of the economy and their own industry
- Mid-February to mid-March: More than 70 percent of participating CEOs said the state of the economy had deteriorated compared to six months ago. And 55 percent said the state of their own industry had deteriorated compared to six months ago.
- Late March to early April: By this point in time the economy had further deteriorated. As such, 97 percent of CEOs said conditions had deteriorated and were significantly worse than they were six months ago. And 92 percent said the same about the outlook for their own industry.
- Why the increased pessimism? On March 26th the Department of Labor reported that in one week alone, 3.3 million Americans filed for unemployment insurance. In addition, by late March several states had already begun enacting various social distancing measures. Also, there were abundant signs showing a severe pullback in consumer spending.
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CEOs’ outlook improves: the future of the economy and their own industry
- Mid-February to mid-March: Only about a quarter of CEOs felt that both the economy and their own industry would be better six months down the road.
- Late March to early April: By this time, sentiment started to shift. Now, about half of CEOs foresee the economy and their industry improving six months from now.
- Why the increased optimism? A more positive outlook is likely due to CEOs having had more time to digest the consequences of the economic fallout and develop plans for responding to it. In addition, both the Federal Reserve and US Congress had enacted measures to help prop up credit markets, the economy, businesses, and consumers.
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