A sharp drop in executive confidence, combined with rising inflation and tariff uncertainty, is forcing American businesses to rethink hiring, investment, and growth projections.
The mood in American boardrooms has shifted in a way that is hard to ignore. Just three months ago, many of the country’s top executives were cautiously optimistic about the economic trajectory. By June, that optimism has been largely replaced by something closer to anxiety. The change has been swift, measurable, and consequential for anyone trying to understand where the U.S. economy is headed in the months ahead.
The clearest signal comes from the Conference Board’s quarterly survey of chief executives. CEO confidence fell to 47 in Q2 2026, down sharply from 59 in Q1. Any reading below 50 indicates that negative outlooks outnumber positive ones. More striking than the overall number are the specifics behind it: only 15% of CEOs say the economy is better than it was six months ago, a drop from 39% in Q1, while 47% say it has gotten worse, up from just 8% in the previous quarter. That kind of swing in sentiment, in a single quarter, reflects something more than ordinary business cycle uncertainty.
Tariffs, Inflation, and the Cost of Uncertainty
To understand what is driving this shift, it helps to look at what changed between January and June. Tariffs have been a persistent source of disruption for businesses that rely on imported materials, components, or finished goods. In Deloitte’s 2025 manufacturing survey, more than three-quarters of manufacturers cited trade uncertainty as their top concern. The issue is not just the tariffs themselves but the unpredictability around them. Companies can adjust to known costs; what they struggle with is not knowing what trade policy might look like next month or next year.
That uncertainty has had a measurable effect on prices. Goldman Sachs projects that the current tariff regime will raise inflation by 1 percent between the second half of 2025 and the first half of 2026 relative to its counterfactual path. For consumers already stretched by housing costs and elevated prices across most categories, that additional burden is real. The Department of Commerce’s second estimate of real GDP growth for the first quarter of 2026 came in at 1.6 percent — an improvement over the fourth quarter’s 0.5 percent, but still well below the pace needed to sustain the kind of expansion the administration has been claiming.
The energy picture adds another layer of complexity. Despite recent shifts in energy costs due to the conflict in the Middle East nudging headline inflation, the U.S. economy is more resilient to energy price fluctuations due to increased domestic oil production. That resilience has prevented a worse outcome, but it has not been enough to fully offset the broader pressures on business costs.
Hiring Freezes and the Labor Market Slowdown
Perhaps the most consequential consequence of falling CEO confidence is its impact on employment. Thirty-one percent of executives now expect to reduce their workforce over the next six months, outpacing the 28% who plan to expand hiring. Planned wage hikes are also losing steam, concentrating in the 3% to 4% range. For workers who have enjoyed relatively tight labor market conditions over the past two years, this is a meaningful warning sign.
The picture varies considerably by company size and sector. Among midsize business owners, roughly three-quarters expect to increase revenue in 2026, and 64% project higher profits. Nearly half still plan to expand their workforce, even as many incorporate AI into their operations. Technology-driven companies are actually showing stronger-than-average confidence. Respondents from Innovation Economy companies, including early-stage startups and venture-backed firms, reported higher optimism at both the company and industry level.
The divergence between large corporations pulling back and smaller, technology-oriented companies still expanding points to what some economists are calling a K-shaped economy — one where certain segments thrive while others contract, and aggregate numbers obscure the reality for a large portion of workers and businesses.
What Comes Next: The SCOTUS Wildcard
One factor that could shift the trajectory significantly is an expected Supreme Court ruling on the administration’s authority to impose tariffs. The Supreme Court is expected to rule on whether the administration had the legal authority to impose the majority of its tariffs, with betting markets putting the odds of a ruling against the administration at around 75 percent.
A decision against the administration could have enormous implications for business planning. It could trigger a wholesale rollback of tariff policies that have been a primary source of economic uncertainty for the past 18 months. However, analysts at Stanford’s Institute for Economic Policy Research note that the administration has shown resilience in maintaining tariff positions even when politically costly, and the same pattern may hold here.
For now, businesses are responding to the uncertainty the only way they know how: by slowing down. Hiring is more cautious, capital expenditures are being scrutinized more carefully, and the confident expansion plans that characterized early 2025 have been replaced by a wait-and-see posture. Whether that caution proves warranted or premature will depend heavily on decisions being made in Washington in the weeks ahead.
Sources: Fox Business | U.S. Treasury | Mercatus Center | Stanford SIEPR | JP Morgan
Author: Diego Rodríguez Velázquez
