Despite continued macroeconomic challenges, just under half of U.S. midsize business leaders expect a recession in the second half of 2023, according to JPMorgan Chase’s 2023 Midyear Business Leaders Outlook survey. More specifically, 45% of business leaders anticipate a recession before year-end or believe the economy is already in one, down from 65% six months ago. Alternatively, 36% of respondents do not expect a recession this year, and 20% are uncertain whether one will occur at all.

The moderated recession fears come as the majority of business leaders remain pessimistic or neutral in their economic outlooks, though optimism for the global and national economy slightly increased from the start of 2023.

The share of business leaders who are pessimistic about the global economy for the year ahead fell to 39% from 60% in January, while 46% hold neutral outlooks. Only 15% of respondents are optimistic about the global economy, which is up from 8% six months ago.

The percentage of business leaders expressing pessimism about the national economy dropped to 37% in the mid-year survey from 43% at the start of 2023. Fewer than three in 10 survey respondents (29%) are bullish on the national economy, but this is an increase from 22% six months ago.

Two-thirds of respondents (67%) remain confident in their company’s performance for the next year, roughly in line with sentiment from six months ago. Similarly, 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%). Business leaders did project lowered expectations for hiring, with under half (42%) expecting to add headcount in the next year. The majority of business leaders (57%) expect their credit needs to remain consistent in the year ahead.

“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,” Ginger Chambless, head of research at JPMorgan Chase Commercial Banking, said. “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.”

Business leaders cited labor shortages, inflation and competition as the top external threats or risks to their companies. In particular, inflation continues to impact the bottom line and pricing decisions, even as there are signs it has recently moderated.

• Nearly eight in 10 business leaders (79%) said their costs of doing business have risen in the past six months compared with 91% at the beginning of the year.
• Three-quarters (75%) of survey respondents are likely to continue to raise prices to mitigate costs.
• Nearly seven in 10 leaders (68%) want the Federal Reserve to pause rate hikes in the current economic landscape.

Innovation Economy

As the innovation economy sector — which encompasses high-growth companies and venture-backed startups — was heavily impacted by disruption in the banking sector earlier this year, optimism dipped among its business leaders; yet, economic forecasts in this sector remain bright compared to midsize business leaders across other industries.

• Half (50%) of innovation economy leaders surveyed are positive on the national economy for the year ahead and 42% are hopeful about the global economy, though these numbers have fallen from 58% and 57%, respectively, six months ago.
• More than three-quarters of respondents from the innovation economy sector (76%) are optimistic about their own company’s performance, a drop of nine percentage points since the beginning of the year.
• Most innovation economy executives maintain high business expectations, as 76% expect to increase revenue or sales and 68% anticipate increased profits in the year ahead.

Slightly more than six in 10 innovation economy business leaders (63%) reported their costs of doing business have risen over the last six months. This segment is more mixed in its views on the Fed’s response to the current economic landscape, with 44% calling for a pause to rate hikes and 42% believing the Fed should raise rates, even as 28% of innovation economy leaders cited the cost of debt as the top external threat or risk to their businesses.

“The overall confidence and continued high expectations of innovation economy business leaders provide strong evidence of their resiliency and entrepreneurial spirit,” Melissa Smith, co-head of innovation economy and head of specialized industries for JPMorgan Chase Commercial Banking, said. “Even amid unforeseen challenges in the first half of 2023, they’ve remained focused on tackling some of today’s most pressing issues and ultimately growing their businesses during this pivotal moment.”

Artificial Intelligence

In recent months, businesses have faced volatility not only from economic factors, but also from new and more widespread uses of emerging technologies, most notably artificial intelligence. However, business leaders are split on the adoption of AI tools, such as generative AI and language processing software.

• Thirty-eight percent of respondents are already using or considering using AI tools, but 46% neither use nor plan to use them.
• Of the businesses adopting or considering adopting AI tools, the majority (53%) are integrating them into business operations, and 46% are tapping the new technology for internal and/or external communications.

Survey Methodology

JPMorgan Chase’s 2023 Midyear Business Leaders Outlook survey was conducted online from June 14 to July 5 with business leaders from middle-market companies with annual revenues between $20 million and $500 million. In total, 625 business leaders in various industries across the United States participated in the survey.