Decline in CEO Confidence Signals Troubling Economic Outlook for Q1 2025

CEO Confidence Declines in Q1 2025: Economic Impact of Tariffs and Inflation

In the first quarter of 2025, a notable decline in CEO confidence has raised alarms across the small and midsize business (SMB) sector. According to the latest findings from the Vistage CEO Confidence Index, the overall sentiment among SMB leaders dropped by a staggering 22 points from the previous quarter, falling from 100.8 to 78.5. This marked decline can be attributed primarily to escalating apprehensions surrounding tariffs and persistent inflationary pressures that threaten the stability of the economy.

Joe Galvin, the Chief Research Officer at Vistage, commented on this concerning trend, highlighting the stark contrast to the rising optimism observed in the final quarter of the previous year. “CEO confidence took a significant hit in Q1 2025,” he stated, “which is alarming, yet it brings us back to levels we witnessed in Q3 2023. The previous quarter's optimism was likely influenced by expectations surrounding the performance of the new administration, while the current metrics reflect the harsh realities of ongoing economic hurdles.” Given this landscape, the sentiment among SMB leaders suggests a growing caution regarding the U.S. economy's trajectory.

The survey conducted between March 3 and 17, 2025, revealed some undeniable trends impacting these executives: 41% reported that economic conditions had worsened over the past year, with an additional 42% predicting further deterioration in the year to come. Clearly, the apprehension among CEOs is widespread with 69% indicating that changes in trade and tariffs would have adverse effects on their enterprises. This sentiment underscores the uncertainty that tariffs impose on business planning and strategy.

Furthermore, the search for qualified employees is becoming increasingly challenging, as nearly half (45%) of CEOs plan to expand their workforce this year. However, 14% expressed intentions to cut back on hiring, a level only reached during the pandemic of 2020 and the recession of 2008-2009. This duality reflects the conflict CEOs face amidst economic pressures while still attempting to grow their businesses by investing in talent.

In response to the economic climate, 44% of SMBs have already raised prices since the start of 2025, with 51% planning to do so within the next three months. Alarmingly, of these companies, 13% intend to implement price increases of over 10%. This price adjustment trend indicates that businesses are trying to protect their margins despite the challenges presented by tariffs and inflation.

Moreover, the role of artificial intelligence (AI) in business operations is gaining traction among CEOs and their leadership teams. Approximately 70% of CEOs in the segment have incorporated AI into their processes, outpacing individual employee engagement with the technology at 55%. A significant 47% of CEOs are also focusing on training programs to help their employees effectively leverage AI-driven tools and techniques.

The comprehensive results of the Q1 2025 Vistage CEO Confidence Index highlight the critical intersection of economic conditions and business strategies amid rising uncertainties. They serve as a vital indicator for the broader implications on the U.S. Industrial Production Index roughly nine months ahead. As SMB CEOs adapt to these changing circumstances, the evolving business landscape will be pivotal in their decision-making processes, especially in regard to tariffs and the ever-increasing pressures on inflation.

This decline in confidence is concerning, not only for SMBs but for the overall economy. As businesses continue to navigate these turbulent waters, understanding and responding to these challenges will be essential for their sustainability and growth in the year ahead.