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US business leaders’ economic outlook remains tempered

Despite continued macroeconomic challenges, just under half of US midsize business leaders expect a recession in the second half of 2023, finds JPMorgan Chase’s 2023 Midyear Business Leaders Outlook survey. Some 45% of business leaders anticipate a recession before year-end or believe the economy is already in one, down from 65% six months ago. Alternatively, 36% of respondents do not expect a recession this year, and 20% are uncertain whether one will occur.

The moderated recession fears come as most business leaders remain pessimistic or neutral in their economic outlooks. However, optimism for the global and national economy slightly increased from the start of 2023. The share of business leaders who are pessimistic about the global economy for the year ahead fell to 39% from 60%, while 46% hold neutral outlooks. Only 15% of respondents are optimistic about the global economy, up from 8% six months ago. The percentage of business leaders expressing pessimism about the national economy dropped to 37% from 43% at the start of 2023. Fewer than 3 in 10 survey respondents (29%) are bullish on the national economy, but this is an increase from 22% six months ago.

Two-thirds of respondents (67%) remain confident in their company’s performance for the next year, roughly in line with sentiment from six months ago. Similarly, business expectations remain unchanged from the start of the year, with most business leaders anticipating increased revenue or sales (59%) and profits (51%). Business leaders did project lowered expectations for hiring, with under half (42%) expecting to add headcount in the next year. The majority of business leaders (57%) expect their credit needs to remain consistent in the year ahead.

“The resilience of US consumer spending and other tailwinds has helped the economy have a stronger start to 2023 than expected, impacting business leaders’ conviction of a recession occurring this year,” said Ginger Chambless, Head of Research, JPMorgan Chase Commercial Banking. “Still, businesses continue to face the persistent challenges of inflation, interest rates and labour shortages, making it critical for leaders to position their companies for stability in an uncertain economic environment by maintaining strong liquidity and adequate cash balances.”

High cost constraints continue

Business leaders cite labour shortages, inflation and competition as their companies' top external threats or risks. In particular, inflation continues to impact the bottom line and pricing decisions, despite signs it has recently moderated.

Nearly 8 in 10 business leaders (79%) say their business costs have risen in the past six months, compared with 91% at the beginning of the year. Three-quarters (75%) of survey respondents will likely continue raising prices to mitigate costs. Nearly 7 in 10 leaders (68%) want the Fed to pause rate hikes in the current economic landscape.

As the Innovation Economy sector – encompassing high-growth companies and venture-backed startups across industries – was heavily impacted by the disruption in the banking sector earlier this year, optimism dipped among its business leaders; yet, their economic forecasts remain bright compared to midsize business leaders across other industries.

Half (50%) of Innovation Economy leaders surveyed are optimistic about the national economy for the year ahead, and 42% are hopeful about the global economy, though these numbers have fallen from 58% and 57%, respectively, six months ago. More than three-quarters of respondents (76%) are optimistic about their company’s performance, a drop of nine percentage points since the beginning of the year. Most Innovation Economy executives maintain high business expectations, as 76% expect to increase revenue or sales, and 68% anticipate increased profits in the year ahead.

Slightly more than 6 in 10 Innovation Economy business leaders (63%) report their business costs have risen over the last six months. This segment is more mixed in its views on the Fed’s response to the current economic landscape, with 44% calling for a pause to rate hikes and 42% believing the Fed should raise rates, even as 28% of Innovation Economy leaders cite the cost of debt as the top external threat or risk to their businesses.

“The overall confidence and continued high expectations of Innovation Economy business leaders provide strong evidence of their resiliency and entrepreneurial spirit,” said Melissa Smith, Co-Head of Innovation Economy and Head of Specialized Industries, JPMorgan Chase Commercial Banking. “Even amid unforeseen challenges in the first half of 2023, they’ve remained focused on tackling some of today’s most pressing issues and ultimately growing their businesses during this pivotal moment.”

Meanwhile, businesses have faced volatility from economic factors and new and more widespread uses of emerging technologies, most notably artificial intelligence (AI). However, business leaders are split on adopting AI tools, such as generative AI and language processing software.

Over one-third (38%) of respondents already use or consider using AI tools, but 46% neither use nor plan to use them. Of the businesses adopting or considering AI tools, the majority (53%) are integrating them into business operations, and 46% are tapping the new technology for internal or external communications.

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