CEO survey: US CEOs brace for a recession of unknown magnitude

The January 2023 EY CEO Outlook survey finds US CEOs universally anticipating a recession but preparing for the unexpected.

As we enter 2023, corporate leaders are already braced for a recession. The only mystery is what final form the downturn will take: Mild or deep — and will the US weather the storm better than the rest of the world? Other economic and geostrategic subplots add uncertainty to the story: Will supply chain issues continue to be a disrupter? Will the war for talent finally ease? Will a new geopolitical cataclysm, beyond the ongoing war in Ukraine, further shake global confidence? It would be a thriller worthy of Agatha Christie if it wasn’t happening to all of us in real time.

Our latest quarterly CEO survey finds US CEOs operating with certainty while leaning into the mystery. With an all-but-unanimous 99% expecting an economic downturn, and roughly half saying the recession will be mild domestically, CEOs are factoring this gathering storm into their strategic models and keeping their options open. Deal pipelines are still notably full, but executives are deploying capital very judiciously. In this market, it’s one thing to consider inorganic growth options, but quite another to pull the trigger.

Talent pressure eases, but workplace flexibility remains

The talent outlook also seems to have turned a corner. Attrition rates have dropped considerably, reducing talent churn, and executives are no longer discussing the so-called Great Resignation. In fact, EY-Parthenon teams forecast the unemployment rate will average 4.5% in 2023 and peak at 4.8% in the third quarter, an increase from 3.5% in December. This loosening may be reflected in our CEO survey as scarcity and cost of talent dropped among key business risks — only 12% consider it a primary risk — and only about one-third identify talent investment as essential to emerging from a potential downturn. However, the shift to flexible work arrangements appears to be better established: 63% of executives agree that flexible working is increasingly critical to reducing employee churn and attracting new talent. Even if employees are no longer in the driver’s seat, the rules of the road have changed.

No two business cycles are alike. But what makes this anticipated correction particularly unusual is the stockpile of capital corporates and PE firms amassed before the US Federal Reserve began laddering up interest rates to tame inflationary pressure. Combine that with still historically low unemployment and the lingering impacts of the pandemic. Indeed, a clear majority of executives tell us they expect this downturn to be different: exacerbated by geopolitical tensions, supply chain disruption, talent shortages and ongoing pandemic-related issues.

Even with only a couple of those negative impacts, CEOs would have their work cut out for them navigating the contours of 2023’s business climate. Still, now is the time for companies to be poised for growth and ready to move when the time is right. The mystery at the heart of the next recession will be revealed soon enough — but to quote both a Beatles song and a recent hit movie, for now it’s like looking through a glass onion.