Vistage‘s latest report reveals that in the second quarter, confidence among small and medium-sized enterprise (SME) leaders in the U.S. economy declined. The Vistage CEO Confidence Index, affected by inflation and high interest rates, fell from 85.9 in the first quarter to 83.3 in the second quarter.

Over the past two years, the Federal Reserve has raised interest rates from near-zero levels to above 5% in an effort to curb inflation, significantly impacting SMEs.

The survey shows that 64% of CEOs acknowledge that high interest rates have had a negative impact on their businesses. Despite this, 60% of CEOs still expect revenue to increase over the next 12 months.

Although the inflation rate has dropped from 9% in the summer of 2022 to the current 3%, businesses continue to feel the effects of high prices. 59% of respondents believe that labor costs are the largest source of inflation, 12% cite raw materials, 9% mention equipment costs, and 8% refer to service costs.

Despite rising labor costs, most CEOs do not plan to reduce their workforce; only 10% of respondents believe their company will cut staff in the next 12 months.

Looking ahead, many CEOs are optimistic about investing in AI. Nearly one-third of surveyed CEOs report increasing AI spending, with 49% allocated for sales and marketing, 33% for improving operational efficiency, and 23% for customer service. Additionally, 55% of respondents say their AI budgets remain unchanged.