PEO
CEO Confidence Falls to Lowest Level Since Mid-2025 as Economic Pessimism Doubles
By Anthony Beck, . Insurance Wire.
CEO confidence in the United States declined in the fourth quarter of 2026, according to The Conference Board's Measure of CEO Confidence survey, as reported by HRO Today.
The index fell from 52 in the third quarter to 46, its lowest reading since the second quarter of 2025. A reading below 50 indicates that negative responses outweigh positive ones.
Among the 131 executives surveyed, 41% expect general economic conditions to worsen over the next six months, compared with 19% in the previous quarter.
Expectations for individual industries also deteriorated, with 28% anticipating worsening conditions in their sectors, up from 13%.
Dana M. Peterson, Chief Economist at The Conference Board, attributed the decline in confidence partly to geopolitical tensions and elevated oil prices during the survey period.
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Hiring Plans Show Growing Caution
The survey found that 33% of CEOs plan to increase employment over the next 12 months, while 31% expect to reduce headcount. Another 36% anticipate no change.
The proportion planning workforce reductions increased from 28% in the previous quarter.
These figures indicate that employers remain divided on hiring rather than uniformly preparing for layoffs.
Capital spending plans are somewhat more resilient.
The share of CEOs expecting to increase capital investment rose to 36%, compared with 31% in the third quarter. Another 53% expect to maintain current investment levels.
This suggests that some businesses are continuing to invest in equipment, technology and operations despite concerns about economic growth.
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Wage Increases Remain Part of Employer Budgets
Despite weaker confidence, more executives are planning larger compensation increases.
The percentage expecting wage increases of at least 4% rose from 9% in the third quarter to 16% in the fourth quarter.
For employers, this creates a potential challenge when payroll expenses increase without corresponding growth in business revenue or employee productivity.
For Professional Employer Organizations (PEOs), higher wages can also affect the economics of client relationships.
PEOs charging administrative fees as a percentage of payroll may generate additional revenue when wages increase, while those charging fixed per-employee fees generally do not.
Workers' compensation premiums may also increase as insured payroll rises, depending on classifications, rates and policy structure.
However, higher wages do not automatically increase health insurance premiums. Medical renewals are primarily influenced by claims experience, utilization, medical cost trends, demographics and the applicable insurance funding arrangement.
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Cybersecurity and AI Dominate Executive Concerns
Cyber threats were identified as a major risk by 71% of respondents, followed by artificial intelligence and emerging technology at 64%, and geopolitical risks at 58%.
The survey also examined how executives expect AI to affect their organizations.
Nearly half identified productivity improvements and operating cost reductions as AI's greatest potential benefits.
At the same time, 40% identified insufficient organizational transformation as the largest AI-related threat to enterprise value.
Cybersecurity was the most frequently cited AI-specific concern, identified by 94% of respondents, while 25% expressed concern that their organizations were adopting AI too slowly.
These findings indicate that executives see opportunities to improve efficiency but remain concerned about technology risks and the pace of implementation.
For employers, adopting AI may require additional attention to employee training, data security and internal policies governing the use of workplace technology.
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What the Findings Mean for PEOs
PEOs are affected by changes in employment because their revenue commonly includes administrative fees based on employee counts or total payroll.
When existing clients slow hiring, per-employee revenue growth can weaken even if those businesses remain financially stable.
Workforce reductions can have a more direct effect, reducing the number of employees serviced and potentially lowering payroll-based administrative revenue.
For PEOs providing workers' compensation coverage, reduced payroll may also lower premium volume, although the effect on profitability depends on rates, claims experience and program structure.
The survey's wage findings create a separate consideration. Employers may face rising labor costs even when headcount remains unchanged, making administrative pricing and benefits renewals more important in overall workforce budgeting.
However, the survey primarily reflects the expectations of chief executives and should not be treated as a direct forecast of employment changes among small and mid-sized PEO clients.
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What to Watch Heading Into 2027
The Conference Board's findings show a deterioration in executive expectations, but they do not establish that widespread layoffs or a recession are imminent.
Most respondents still plan to maintain or expand their workforces, and capital investment intentions remain relatively stable.
The more important development to monitor is whether the share of executives planning workforce reductions continues to increase in subsequent surveys.
For PEOs, actual changes in client employee counts, payroll volume and retention will provide a clearer indication of financial impact than CEO confidence alone.
Industry-specific hiring trends will also matter, particularly for PEOs with significant exposure to construction, manufacturing, staffing or other sectors sensitive to economic conditions.
The fourth-quarter results indicate greater caution heading into 2027, but whether that caution translates into meaningful employment reductions remains uncertain.
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Sources
HRO Today: CEO Confidence Slips in Q4 https://www.hrotoday.com/news/ticker/ceo-confidence-slips-in-q4/
The Conference Board: Measure of CEO Confidence https://www.conference-board.org/topics/CEO-Confidence
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