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Covid is Impacting CEO Confidence About the Future: The Week Ahead

CEO confidence remains down as their assessment of future conditions has declined due to COVID-19 uncertainty.

Executives in the C-suite were slightly less pessimistic about current conditions than they were in the second quarter.

“Nearly 90 percent say conditions are worse compared to six months ago, down from 100 percent last quarter,” The Conference Board said. More importantly, their expectations for the short-term outlook about six months out has also decreased. “Now, 62 percent expect economic conditions will improve over the next six months, down from 71 percent last quarter. Moreover, nearly 17 percent expect economic conditions will worsen, up slightly from 16 percent in [the second quarter],” The Conference Board said.

What the third quarter survey found was that business leaders over the next 12 months are focused on workforce reductions, trimming capital spending and only slight wage increases if they are planning on any pay increases.

Roughly 38 percent surveyed expect to reduce their workforce. While 37 percent said they will slash their capital spending budgets by 10 percent or more, an additional 18 percent said they expect to reduce their spending plans by less than 10 percent. And with continued uncertainty over economic conditions, nearly 50 percent said they plan to increase wages by less than three percent. Over one-third said they do not foresee increasing wages over the next 12 months.

The data matches up with what many fashion companies have been doing for the last several months as they reviewed operations and fine-tuned strategies heading into fall and the holiday selling season. At the end of the second quarter, Nordstrom Inc. and Macy’s Inc. laid off workers.Companies have continued to slash headcount during the third quarter, with Saks Fifth Avenue the latest to cut jobs.

And while wages make up a sizable portion of a company’s expenses, store overhead ranks fairly high, too. Tapestry Inc., which has reduced its headcount by 20 percent, on Thursday unveiled a new go-forward plan that’s expected to help it regain some margin oomph sooner rather than later.

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For a brand like Coach, it will mean quicker decisions on closing unprofitable stores, including when landlords refuse to provide rent concessions or when internal sales goals haven’t been met. Stock keeping units for holiday also have been reduced by 50 percent, an effort to lean in on what’s resonating with customers and go narrow and deep on assortment instead of offering items that won’t sell as well.

In general, the latest survey of The Confidence Board’s Measure of CEO Confidence saw a modest increase of a one-point uptick to 45 in the third quarter from 44 in the second quarter. A reading below 50 points indicates more negative than positive responses. The last time The Conference Board’s Measure of CEO Confidence Index was 50 or higher was the third quarter of 2018 when it hit 55. The Index has been declining since then, falling within the average 43 percent. The Index did reach an average low of 35 percent in the first quarter of 2020 at the height of the coronavirus pandemic overseas and the start of the outbreak in the U.S.

“Without substantial containment of COVID-19, widespread uncertainty will continue being the dominant cloud hanging over America’s CEO community,” Bart van Ark, chief economist of The Conference Board, said. “With more than one-third of CEOs planning to make workforce and sizable capital spending reductions over the next year, the effects on the economy could extend beyond the next 12 months.”

The survey was conducted by The Conference Board from July 15 through July 31, and for the first time it was done in collaboration with The Business Council, via a survey of its members.

“By collaborating with The Conference Board on their CEO Confidence survey, the world’s top CEOs who are members of The Business Council are providing insights on how they are feeling about the economy and the business environment and steps they plan on taking in light of their sentiment,” said Roger W. Ferguson, Jr., vice chairman of The Business Council and a trustee of The Conference Board.