As a CEO, it's easy to get caught up in the day-to-day demands of your business and overlook what's happening in the broader economy. But in order to make the best decisions for your business, you have to stay on top of economic trends and conditions.
At Vistage, one of the ways that we keep tabs on the state of the economy is with the Vistage CEO Confidence Index. Measured on a quarterly basis, the index reflects the opinions and projections of CEOs about the economy, hiring and investment plans, and prospects for revenue and profit growth. It has a strong track record of predicting GDP growth.
Our Q2 2018 survey, which captured the opinions of 1,477 CEOs from small and midsize businesses, measured the CEO Confidence Index at 104.1, which is close to its 10-year high. More than three-quarters (78 percent) of survey participants said they expect higher revenues in the year ahead, while 62 percent said they expect greater profits. Nearly half (48 percent) said they plan to increase their investments and 61 percent said they will increase their employee count.
This is good news -- and yet, there are signs that economic conditions may soon take a turn for the worse. Some market observers are concerned that the nine-year economic expansion -- now the second-longest period of economic recovery in U.S. history -- is starting to lose steam.
Meanwhile, interest rates are starting to rise while wage pressure and material costs are growing. Trade conflicts are also stoking fears of a recession.
To help you prepare for what lies ahead, we analyzed our research findings and consulted with experts in the Vistage community to identify the most important risk factors for the remainder of 2018. Here's what you should be pay attention to in the next six months, and how it might impact your business:
1. Cost pressures are broadening and growing stronger.
Wages are rising. Interest rates are increasing. Energy costs are surging. New tariffs and trade policies are stressing supply chains and spiking raw material costs. As a result, your company is going to find it harder to maintain your level of output and increase your productivity in the second half of this year.
2. The hiring shortage has turned into a hiring crisis.
If you think it's hard to hire top talent right now, it's about to get even harder: According to the Bureau of Labor Statistics, there are currently 6.7 million jobs open in the United States and only 6.4 million available workers to fill them. That's a problem if you're looking to grow your business or enter new markets, as a shortage of workers may be a barrier to scale.
3. Taxes, trade and tariffs translate to trouble.
The new tax law has created as much uncertainty as opportunity for small and midsize businesses. While you may benefit from certain changes (e.g., the revised Section 179 deduction and 20 percent pass-through income deduction) other changes may create new costs for your company (e.g., limitations to net-business-loss deductions).
At the same time, new trade policies and tariffs are driving up material costs and heightening financial risks for businesses. As global supply chains become more fractured, this may filter down to your company.
4. Cyberattacks are a silent killer.
If you have employees, customers or financial data, you are a target for a cyberattack. Cyber criminals are aggressively targeting small and medium-sized businesses, and cyberattacks are increasing in complexity, frequency and severity.
Those attacks can lead to loss of data, cash, customer records, employee information, leadership credibility, and employee and customer trust. Make sure you've taken the proper precautions to protect yourself.
5. A recession is inevitable.
In May, half of the economists surveyed by the National Association for Businesses Economists said they predict a recession by late 2019 or early 2020. Two-thirds said they predict a recession by the end of 2020.
One of the key reasons is the gap between short-term and long-term interest rates, known as the yield curve, is shrinking. If this trend continues and leads to an inverted yield curve, it sends a strong signal that a recession is coming. In fact, every recession of the past 60 years has been preceded by an inverted yield curve.
For small and midsize business leaders, continue to monitor wages, commodities, and interest costs as they will continue to edge upward during the year ahead, which should translate to strategies tied to lowering costs as well as increasing prices.