The Vistage Confidence Index is a quarterly analysis of data collected from over 200 CEOs of small to medium-sized businesses. We look at their overall confidence in the economy, their investment plans, revenue expectations, talent outlook and more.
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Business confidence continued to grow through the second quarter of 2021. Overall CEO confidence reached 141.4, up from 129.0 in Q1, and a significant increase on the figure of 66.3 seen in Q2 2020.
The picture painted by our Q2 2021 Confidence Index is very different from that of Q1. 73% believe that overall economic conditions have improved compared with a year ago, versus 31% in Q1.
Going forward, levels of confidence in the economy remain high. 75% of CEOs believe that overall economic conditions will continue to improve over the coming 12 months.
This echoes figures revealed by Rishi Sunak, showing that - despite GDP still two percentage points below its pre-COVID peak - a 4.8% rise in GDP in Q2 puts the UK economy as the highest of any G7 nation.
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CEOs are keeping an eye on the cost of inflation. In the month to July, the rate of inflation jumped from 2.1% to 2.5% - its highest level in almost three years. This doesn’t necessarily mean that the economy is set to sink - it could just be a result of recent economic growth.
53% of the CEOs we surveyed said that the rising cost of raw materials caused by inflation was the biggest impact on their business. 50% said that the increased cost of labour had the second biggest impact. As a result of rising inflation, 60% of CEOs expect the costs of their products and services to increase in the next six months.
As overall confidence increases, our Q2 results show that more and more business leaders are investing in growth.
61% of CEOs plan on increasing their total fixed investment expenditures over the next 12 months. 33% expecting them to stay about the same.
But where are SMEs directing this investment? For some, reducing office space in favour of higher levels of hybrid working is freeing up funds that are most likely to be invested in digital transformation. Others are focusing more on training and development, with areas such as social media marketing, e-commerce and learning how to take digital payments being prioritised.
Since the publication of our Q1 report, expectations for sales revenues and overall business profitability have remained constant.
83% of CEOs believe their sales revenues will increase over the coming 12 months, with 14% expecting them to be roughly the same. This is compared with figures of 84% and 12% in Q1. Importantly, only 2% of CEOS surveyed expect revenues to decrease, compared to 4% in Q1.
It’s a similar picture when it comes to profitability. 64% expect their firm’s profitability to improve in the coming 12 months, and 28% predict that it will stay the same.
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While revenue and profit expectations have not risen quarter on quarter, it is reassuring to see this consistency. Combined with other industry data - like the huge rise in the number of new startups that are being created in 2021 - these high levels of confidence bode well going forward.
73% of respondents believe that their firm’s total number of employees will increase in the next 12 months. But this may come with its own challenges.
Research from the Association of Professional Staffing Companies reveals that agencies are warning of staffing shortages across all sectors. Compared with the previous year, permanent vacancies advertised by agencies rose by 43% while the number of advertised contract roles rose by 53%.
This dynamic means that workers have a greater choice of roles than ever before, which reflects in our Q2 Confidence Index results. 35% of CEOs state that the biggest reason for staff turnover is the promise of a higher salary elsewhere. 62% say that their current hiring challenges mean that they cannot operate their business at full capacity.
Those who say hiring is becoming more difficult are adopting new strategies in response. They are developing their existing workforce, refining their recruitment strategies, and boosting wages.
Our latest CEO Confidence Index reveals plenty of positive sentiment about the coming 12 months, with the majority of CEOs seeing the future as a brighter place after the turmoil of the last 18 months. However, there are still challenges to be weathered - in order for SMEs to succeed, plans must be put in place to combat the effects of rising inflation and a potentially tricky labour market.
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