Business Problems CEOs Will Face in 2024

In 2023, business leaders faced an uphill climb as they dealt with the economic uncertainty of a recession fueled by higher interest rates, inflation, and tighter margins. Global and political unrest added yet another layer of unpredictability. Will these same issues plague companies in 2024? How does the C-suite feel about their prospects for the year?

According to The Conference Board, 72% of CEOs believe there will be a recession in the next 12-18 months. That’s a drop of 21% from the beginning of 2023, but CEOs remain cautious about the coming economic environment.1 While most believe the current economy and industry conditions are better, many are skeptical about the coming year.

Business leaders are pessimistic about the next six months.

With lingering fears of a recession, most CEOs (47%) are preparing for worsening fiscal conditions in the early months of 2024. Twenty-nine percent expect similar conditions within their industries.2

Cal Evans, Synovus senior director of market intelligence, conducts a quarterly business and employment outlook survey of commercial clients in such diverse industries as health care, restaurants and hospitality, airport operations and specialty trade contracting. He sees a clearly divided line between industries that expect to do well next year and those that don’t. In his estimation, “broadly speaking, it’s health and wealth versus everybody else.”

“Businesses in the health sector and those that serve wealthier customers have been able to thrive because their clients are less price sensitive. Industries serving middle-class or lower-income customers face more tenuous outcomes,” says Evans.

Respondents to the Synovus survey directly shared their experiences. For example, a country club operator expects 10% membership growth in 2024. Conversely, a pest control operator cited increasingly high gasoline and labor costs but is hesitant to raise prices because of potential customer attrition.3

Like many of the CEOs in The Conference Board survey, Evans foresees some of the same business problems as in the previous year, along with one (cybersecurity) that is eclipsing last year’s concerns.

These are the problems that need to be solved.

1. CEOS will battle margin compression.

   How much can a company raise its prices without losing business? The cost of labor and inputs are still generally quite high. And while some commodity costs — such as oil and building materials — have retreated, the cost of consumer goods hasn’t. Consumers will only pay so much for an item, although the proprietors’ input and operating costs have doubled in some cases. A $10 cup of coffee? No, thank you.
   
   This margin compression is related to scale, so it’s harder on smaller companies than on larger ones. “Smaller companies are often unable to pass cost increases along to customers and still preserve their margins. Determining a pricing model that will allow a sustained profit will be challenging for companies moving forward,” said Evans.
   
   There are multiple factors to consider. “Should businesses use lower-quality, less-expensive materials? Import from other countries? Reduce their workforce? All these options — and many more — are on the table. The C-suite needs to find the sweet spot,” says Evans.

2. Interest rate resets will cause shockwaves.

   “In the U.S., we’ve enjoyed a cheap debt environment for decades,” Evans noted. “But every company, real estate owner or consumer that has a maturing low interest rate loan is fearful of the hit they’ll take when it comes time to refinance.”
   
   To slow the economy and reduce inflation, the Federal Reserve raised interest rates 11 times since March 2022. They’ve landed at about 5.4%, which is the highest level in 22 years.4 According to Evans, new loans, including commercial loans and mortgages, may land in the 7% to 8% range — a huge difference from the 3% to 4% to which borrowers have grown accustomed. “Anything related to variable rates will cause financial pressure,” says Evans.
   
   Annually consumer prices are now rising more slowly, and inflation is at its lowest year-over-year rate in more than two years.5 The Federal Reserve reiterated this statistic in its December meeting, which could be a sign that “higher for longer” rates could subside. That said, CFOs are closely watching their financing costs.

3. Everyone will (still!) fear a recession.

   U.S. businesses and consumers have been afraid of a recession since late 2022. Most want to know when it will come and whether there’ll be a hard or soft landing.
   
   A recession is technically defined as two consecutive quarters of negative GDP growth. But the U.S. economy grew at 5.2% in third quarter 2023 — the quickest in two years — indicating a defined recession isn’t imminent.6
   
   However, those on a lower or even lower middle-income scale may feel differently. Says Evans, “These consumers feel like they are in a recession and have been for a year. Increased prices and interest rates are destroying their discretionary income. So technically the country may not be in a recession but for this group it certainly feels like it. Those on the higher-income scale feel they’re doing just fine.”
   
   For businesses, recession fears go beyond consumer price sensitivity. “When companies are uncertain about the economic forecast, they are less likely to invest in big projects such as new research, equipment, or buildings. So, companies spend less and that impacts the industries with whom they do business,” Evans says.

4. Industries will face their own unique challenges.

   Not all businesses or the trials they face are created equal. “For example, commercial real estate investors typically develop and sell properties within a year or two. But because of the fluctuating rate market, they’re reluctant to sell or buy because they might sell too low or pay too much,” says Evans. “And no one wants more office space. That market is effectively frozen. The 'sit back and wait' trend in the commercial real estate industry has been sustainable over the past year, but the longer it goes on the higher the chance of negative effects within this industry.”
   
   Logistics and shipping businesses experienced record performance during the pandemic. But they saw weaker performance in 2023 because consumers were spending less on goods, driving freight spending down, both in dollars and volume. “The hospitality industry is performing well now,” Evans explained, “but it could take a hit next year as discretionary income erodes. Hotels that cater to a higher income bracket will clearly outperform those serving the economy segment.”
   
   On the other hand, Evans says, “Health spending will increase at all income levels. People of lower means are using the healthcare system more than before for basic health needs. The affluent are spending more — often out-of-pocket — on surgical and non-surgical procedures and medications such as Ozempic for weight loss.”
   
   Evans thinks executives in all industries are trying to read the tea leaves to see what’s around the corner in their specific circumstances.

5. CIOs will look to analytics and technology to increase efficiency.

   Forty-one percent of executives are following AI and technology closely. Evans suggests they may be interested in the fields’ ability to deliver two distinct results: more efficient operations and more targeted marketing.
   
   “The pandemic fundamentally changed the way historically lower-tech companies operate,” said Evans. “Restaurants, for example, could serve customers in person, but their take-out business soared. Investments in operational efficiency software made it easy to process customer orders online while integrating those orders into in-person dining models.”
   
   How technology and analytics work in specific companies will depend on available financing and needs, but this type of investment will no doubt be a priority in 2024. For higher-tech businesses, such as logistics and transportation, the automation trend will continue to soar. Distribution facilities like Amazon are now employing fewer people and will continue to rely much more heavily on robotics. Logistics companies who partner with truck manufacturers to invest in self-driving vehicles will make pickup and delivery much easier.

6. Cybercrime and fraud will be an increasing threat.

   For all the benefits technology provides, it can also present security risks and the C-suite is taking note. Sixty percent of executives worry about the potential for cybercrime now and in the future.7
   
   Fraudsters’ endgame is always financial and payment fraud is a primary source of illegal revenue. In 2023, 65% of respondents to an Association of Financial Professionals (AFP) survey saw their businesses attacked.8
   
   Criminals will continue to try and exploit technology to steal. But AI and other machine learning solutions perpetually analyze vast amounts of data, identifying both current and potential threats, and making theft harder for fraudsters.

7. Continuing political and global instability will increase economic volatility.

   Evans notes that election years bring a certain level of insecurity and 2024 will be no different. Ongoing threats of overseas wars also contribute to the unknown impact on international trade and the overall U.S. economy. “It’s going to be an interesting and challenging business environment for a while,” Evans said. “The C-suite is well aware of the hurdles ahead. Sticking to good, basic business principles will help strong businesses manage through the year ahead. Flexibility will be key.”

Do you have a plan for overcoming 2024’s business problems? Contact a Synovus Commercial Banker for relevant insights and strategic advice you can trust.