According to a new survey of corporate executives, business owners and private equity investors from Stifel Financial, inflation and the tight U.S. labor market represent the two biggest perceived threats to business today. In addition, nearly all respondents are bracing for an economic recession.

According to the survey, 53% of respondents believe that inflation will be an issue for the next two quarters to a year, with another 43% expecting elevated prices to persist for even longer. Half (50%) of respondents are “very concerned” about inflation compared to just 33% who felt the same way one year ago. An overwhelming majority of respondents (81%) are primarily passing rising costs on to consumers instead of absorbing costs in profit margins, cutting overhead or changing suppliers.

The survey also revealed that nearly all respondents believe the U.S. economy is either already in a recession (18%) or will face one within the next 18 months (79%). Only 3% think a recession will be avoided entirely.

Despite the gloomy economic outlook, respondents acknowledge the U.S. labor market remains especially strong, with unemployment hovering near historic lows. For the second consecutive year, survey respondents consider labor constraints (64%) the biggest perceived threat to business, followed by inflation (59%) and a recession (54%). Two-thirds (68%) are increasing investment in technology and automation as a way to help mitigate labor shortages, and 41% are increasing their emphasis on acquisitions that promote better efficiency.

“Our survey results are very consistent with what we are hearing from both corporate executives and financial sponsors during everyday conversations,” Michael Kollender, head of consumer, retail and diversified industrials investment banking at Stifel Financial, said. “Despite a turbulent first half of the year, many companies are moving forward with select, strategic deals and taking advantage of market dislocations to reinvest for future growth. More than three-quarters of survey respondents said M&A plays an important role in overall corporate strategy, and 59% are still looking at potential acquisitions, with a heightened emphasis on fit and valuation.”

The survey, which focused specifically on participants operating in the consumer, retail and diversified industrials sectors, also found that:

• While 86% of respondents conceded that rising interest rates will have a negative impact on the ability to raise capital, only 7% consider the impact “significant.” More than half (52%) have either recently raised debt or equity or plan to do so in the foreseeable future.
• 59% believe that supply chain disruptions have improved since the start of the year, but 20% feel they have gotten worse.
• Only 3% of respondents listed COVID-19 as a top risk to business versus 46% a year ago.

“Given the uncertain backdrop, it’s understandable that companies are planning for a potential prolonged downturn and are considering various economic scenarios, as well as their approach to strategic planning over the next year,” Kollender said. “Market conditions and economic cycles often turn quickly, serving as a reminder of why executives, entrepreneurs and investors must have a clear understanding of the external forces impacting their businesses and the ability to consistently adapt.”

The online survey of 70 corporate executives, business owners and private equity investors was conducted between July 18 and Aug. 5.