Corporate CEOs are less upbeat about economic conditions for the fourth quarter, although consumers continued to spend at retail—at least through September.
While 18 percent of U.S. CEOs said current economic conditions are better now than six months ago, down from 28 percent in the third quarter, 32 percent said conditions were worse or much worse, a tad higher than 31 percent in the prior three months.
But their assessment of future conditions worsened in the latest survey. Nineteen percent said they expect economic conditions to improve over the next six months, down from 20 percent. But 47 percent said they expect conditions to worsen, up from 39 percent. The data is from The Conference Board Measure of CEO Confidence, in collaboration with The Business Council. The Measure stands at 46, down from 48 in the third quarter. A reading below 50 indicates a cautious outlook for what’s ahead for the U.S. economy. The survey fielded Sept. 18-Oct. 2 included 136 CEOs.
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As for a recession possibility, those fears receded versus the start of 2023. Sixty-nine percent expect a brief and shallow U.S. recession over the next 12 to 18 months, with limited global spillover, down from 80 percent in the third quarter and 86 percent in the first quarter. And 52 percent expect one more Federal Reserve interest rate increase this year, with 57 percent expecting a possible rate-cutting cycle beginning in the second half of 2024.
As for fourth quarter risks, cybersecurity topped the list of concerns at 60 percent, followed by legal and regulatory uncertainty at 44 percent, financial and economic risks at 43 percent, geopolitical instability at 42 percent and supply chain disruption at 29 percent.
And in the latest survey, 71 percent of CEOs expect to increase wages by 3 percent or more over the next year, while 47 percent report problems attracting qualified workers. The good news is that only 13 percent said they expect a reduction in workforce, down from 20 percent in the third quarter. And 38 percent expect to expand their staff over the next 12 months, a slight dip from 40 percent in the prior quarter.
While CEOs remained cautious, consumers were still spending, sending U.S. retail sales up 0.7 percent in September to $704.9 billion. Retail trade sales were up 0.7 percent from August 2023, and up 3.8 percent from September 2022. Sales at nonstore retailers were up 8.4 percent from year-ago levels.
“Consumers are looking for nothing but a good time,” Wells Fargo economists Tim Quinlan and Shannon Seery noted in a research report Tuesday. The 0.7 percent increase was “more than double the consensus expectation for a 0.3 percent” gain. Consumers seem to have a “devil-may-care mindset” that finds a way to keep spending, they added. And while some may have underestimated U.S. consumers, their spending spree has eaten into their savings and driven up credit card delinquencies.
A deeper dive into the retail sales data shows that September’s apparel and accessories sales at specialty stores inched up 0.1 percent from a year ago, while department store sales declined by 4.7 percent over the same period.
CEOs continue to be concerned about the future despite consumers’ September spending. National Retail Federation (NRF) chief economist Jack Kleinhenz said that the pace of year-over-year growth for core retail is slowing, after excluding car sales, gasoline prices and food services. NRF’s core retail data shows growth at 2.2 percent, down from 3.6 percent in August.
And upcoming headwinds could put a dent in consumer spending. This include another rate increase and people repaying student loans again after a pause on these debt obligations. “As we gear up for the holiday season, we expect moderate growth to continue as consumers focus on value and household priorities,” NRF president and CEO Matthew Shay said.
“Fitch expect flattish to modestly down volume trends over the next six to 12 months, with discretionary categories more volatile given growing headwinds and continued shifts in spending patterns, which have recently benefited services like travel and entertainment,” David Silverman, senior director, Fitch Ratings, said.
So far, a tight labor market could be good for continued consumer spending. As long as income is coming in, some people might feel okay consuming at their usual pace. But that doesn’t mean they’ll spend big on apparel over the holidays, typically one of the top categories for gift giving.
Deloitte’s 38th annual Holiday Retail Survey noted that shoppers are expecting higher prices, and they will economize by budgeting for fewer gifts (8 versus 9 last year), spend more on gift cards ($300 versus $217 in 2022) and hunt for deals (66 percent plan to shop Black Friday to Cyber Monday versus 49 percent a year ago). And non-gift purchases are expected to rise 25 percent this year as consumers prioritize holiday decorations, furnishings and other non-gift apparel.
And a new research report from real estate data firm Clever found that 51 percent of Americans said they would go broke within one month if they lost their jobs, while 29 percent said they’d run out of money in one week or less. And 33 percent said they could receive a “$10,000 windfall and still be unable to meet their financial needs,” the Clever study found. About half of respondents, or 48 percent, are concerned that they won’t be able to afford holiday shopping this year, while a similar percentage said they’re dipped into their retirement or emergency savings in 2023.
