As businesses have braced for what was once a seemingly inevitable recession, a recent study found that those fears are dissipating a bit. JPMorgan Chase’s 2023 Midyear Business Leaders Outlook survey found mixed views on the state of the economy and a potential downturn, while illuminating some of the challenges that are weighing on executives heading into the second half of the year.
According to the outlook, which surveyed 625 business leaders of middle market companies with annual revenues between $20 million and $500 million, fewer than half of respondents expect a recession in the second half of this year – 45%. While that number may seem elevated, it is down from the 65% who anticipated a recession or thought the economy was already in one earlier in 2023. Alternatively, 36% of respondents do not expect a recession this year, and 20% are uncertain whether one will occur.
Although optimism for the global, national and even state economy is increasing from the start of 2023, the moderating recession fears come as the majority of business leaders remain pessimistic or neutral in their economic outlooks.
Brian McEvily, managing director and market executive at JPMorgan Chase, the leader of a team that serves middle market clients in New Jersey, described the mid-year outlook as a pulse check on the economy through the perspective of these business leaders. It follows up on the full-year outlook JPMorgan releases at the start of the year.
When asked what stood out about the survey results, he noted that it has been an interesting 12 to 18 months based on the data and trends the bank is seeing. “It can be really hard to try to dissect all of the data and put together a coherent story,” McEvily told NJBIZ. “And I think all market participants are starting to process the data that has been collected so far this year, which may have not been consistent with our assumptions from the start of the year. What we are seeing in the data from this survey is that the recessionary fears that our business owners had as of December are gradually fading.”
In noting that some of those fears are transitioning to more of a neutral or even optimistic outlook, McEvily said that many leaders are starting to realize that while growth may be slower than in years past, the U.S. may avoid the recession that was widely expected.
Some other notable findings from the outlook seem to reflect those sentiments. For example, the share of business leaders who are pessimistic about the global economy for the year ahead fell from 60% to 39%, while 46% hold neutral outlooks. Only 15% of respondents are optimistic about the global economy, up from 8% earlier this year.
The percentage of leaders expressing optimism about the national economy dropped from 43% to 37% since the start of the year. But 29% are bullish on the national economy — up from 22% in the last survey.
Two-thirds of respondents remain confident in their company’s performance for the next year, which is in line with the earlier outlook. And business expectations remain largely unchanged from the start of the year – with the majority of business leaders anticipating increased revenue or sales (59%) and profits (51%).
“The resilience of U.S. 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 at JPMorgan Chase Commercial Banking. “Still, businesses continue to face the persistent challenges of inflation, interest rates, and labor 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.”
And many of those challenges – labor shortages, inflation, interest rates as well as competition – were cited as the top external threats business leaders faced, particularly inflation that continues to impact decision-making and the bottom line.
Nearly 8 in 10 (79%) say their costs of doing business have risen in the first half of the year compared with 91% at the start of 2023. Three-quarters (75%) of respondents are likely to continue to raise prices to mitigate costs. And just under 7 in 10 leaders (68%) want the Federal Reserve to pause rate hikes.
“Those are not immaterial headwinds for our business owners,” said McEvily. “There are challenges every year. The challenges are not unique. Those three things you’ve been hearing about for at least a year. But those challenges also present opportunities. The other thing that came through in the survey was that there is growing adoption for artificial intelligence and automation in our business communities. And that is, no doubt, out of partially necessity because of the tight labor market. You need to be more efficient with the human and technology resources that you have because there’s not an available supply of labor to fill the gap.”
He pointed out that it is still early innings in terms of adopting AI in the middle market. “And our community is generally still pretty split,” McEvily said.
The survey found that 38% of respondents are already using or considering using AI tools while 46% neither use nor plan to use them. Of the businesses adopting AI, 53% are integrating it into operations and 46% are tapping the new technology for internal and/or external communications.
“Business owners are having to explore these options now to see what kind of investment it would require, what kind of return they might get from that investment,” said McEvily. “I’m touring warehouses now with clients where they’ve got a fully automated picking process – where there’s not a human needed to go and pick a product and get it ready for shipping out of their warehouse. And that’s not the things that we were seeing only three or four years ago. It requires a considerable investment upfront. But for the long-term planners and for the business owners who are committed to their business for the long-term, that’s an investment worth making because nobody expects the labor market to loosen up any time soon.”
McEvily said New Jersey’s business community is strong and diverse. He cited the variety of established and emerging businesses – and everything in between – along with proximity to ports and major markets.
“We generally have a very good cross-section of the U.S. economy that exists in this state,” said McEvily. “So, when we look at the data that comes back from a national survey like this, it tends to be very consistent with what we would see and experience on the ground because our local economy is such a great representation of the broader national economy.”
Despite all the challenges and headwinds, McEvily believes there remains a fair amount of confidence within the local business community to execute on the opportunities before them, with owners, ultimately, having faith in their ability to do what is necessary to make their businesses succeed. That aspect has especially come into play in terms of dealing with the rising costs by increasing revenues — including those 75% of respondents believing they are still likely to raise prices to mitigate those costs.
“It’s hard to make sense of the data that comes out every day, every week,” McEvily explained. “But business owners are learning to execute and still make confident decisions about the growth of their businesses in spite of some of the noise and the data around them.”
In summation, McEvily said that recession concerns are fading, and business owners are not as pessimistic, and rather confident, in their own abilities to figure it out. But conditions are not ideal.
“Our business owners are still feeling OK. Not great. Not terrible,” said McEvily. “They’re still focused on growing their business. For our teams internally, we want to be in front of our clients and understanding what their opportunities are for growth and supporting them in any way that we can.”