Vistage Confidence Index: Optimism reaches highest level of 13 years

In Q4 2017, the Vistage CEO Confidence Index jumped to 110.3, the highest number recorded since 2004. By comparison, the index measured 103.0, 103.1 and 106.9 in the previous three quarters.

The index is calculated as part of Vistage’s quarterly survey of CEOs from small and midsize businesses (SMBs). It accounts for several factors, including CEO opinions on current economic conditions, expected economic conditions, expected change in employment, planned fixed investments, expected revenue growth and expected profit growth. The index has a strong track record of predicting GDP growth.

In his analysis of the survey results, Dr. Richard Curtin of the University of Michigan noted that several of the index’s contributing factors reached significant levels in the Q4 2017 survey.

“Planned increases in the workforce and expected revenue were the highest in a dozen years, anticipated profit growth was the highest in 10, and intentions to expand investments in their productive capacity reached the highest level since 2004,” he said. Expected changes to the tax bill also impacted the index. “This surge in CEO optimism about all aspects of their firms’ health was recorded before the final passage of the tax reform measure, but its passage was certainly anticipated,” Curtin said.

Results from the Q4 2017 survey revealed other important findings about the current state of SMBs and outlook of SMB CEOs. They include the following.

SMBs plan to hire and invest more

In the Q4 2017, the majority of SMB CEOs (71%) said that they planned to increase hiring in 2018, compared to 62% in Q3 2017. This represents the highest percentage of planned workforce additions since 2003.

Similarly, 54% of CEOs said that they planned to increase their investments in plant and equipment, compared to 47% in Q3 2017. This is the highest number recorded in more than 12 years.

“While intentions are not always fulfilled, it will be a very positive outcome if the tax reform legislation results in more jobs and more capital investments,” said Curtin. “The difficulties in increasing the current full-employment workforce will necessitate higher wages; those wage gains may spark higher inflation and added interest rate hikes.”

CEOs believe U.S. economy has improved

Reacting to the recent 3% economic expansion in the United States, more than half of SMB CEOs (66%) reported that the economy had recently improved — an increase over last quarter’s 52% and last year’s 42%.

Looking ahead, however, only 42% of CEOs anticipated continued economic growth. This is higher than last quarter (32%) but lower than one year ago (58%).

“The overall confidence index suggests a much faster pace of GDP growth in the year ahead,” said Curtin. “In reality, what seems likely is growth that falls somewhere between the high level of overall optimism and more modest prospects for the economy. Importantly, in either case, CEOs of small to midsize firms anticipate strong economic growth in 2018.”

CEOs anticipate strong revenues and profits

In Q4 2017, 83% of SMB CEOs said that they expected revenue gains in 2018, compared to 77% recorded in the previous quarter. This is the highest level since 2005.

In addition, 67% of CEOs said they expected profits to improve in 2018, compared to 62% last quarter. However, this proportion is still lower than the all-time peak of 74% recorded in 2003.

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