Business Conditions Survey

January 2026
Amid Cautious Optimism, NABE Panelists See Lower Likelihood of Recession, with Businesses Embracing AI to Drive Productivity

COMMENTS: “The January 2026 NABE Business Conditions Survey results suggest that recession concerns have continued to recede, with more than half of respondents placing the probability of a U.S. recession at 25% or lower,” said NABE President Gregory Daco, chief economist, E-Y Parthenon, Ernst & Young, LLP. “Sales expectations have strengthened to their highest level since mid-2024, while capital spending expectations remain elevated. Labor constraints have eased materially, with most firms no longer facing labor shortages, yet hiring plans remain largely unchanged and a meaningful share of firms continue to delay hiring or investment. At the same time, materials costs are still rising for most firms, but profit pressures are beginning to moderate as cost pass-through improves. Demand uncertainty and policy risks remain prominent, and firms broadly expect tariff levels to stay elevated into 2026.”

“Wage growth showed modest gains, and employment remained essentially steady,” added NABE Business Conditions Survey Chair Martha Moore, CBE, chief economist and managing director, American Chemistry Council. “In addition, labor availability has improved compared to recent years. All firms report using artificial intelligence (AI) in some form, ranging from limited or experimental use to AI being core to their operations. Most firms expect AI to boost productivity, although employment impacts are currently uncertain. Cost reductions and greater efficiency are cited as the top impact that firms expect from AI.”

HIGHLIGHTS

• Nearly three-quarters (73%) of panelists are optimistic about AI’s impact on their company’s productivity in 2026. Sixty percent expect AI to increase their firms’ productivity marginally, while 13% expect significant increases in productivity. A quarter of respondents (25%) expects limited or no impact.

• More than half (56%) of respondents put the probability of a U.S. recession at 25% or lower, up from the 35% in the October survey. While more than one-third (34%) of panelists assesses the probability of the U.S. entering a recession over the next 12 months between 26% and 50%, that share is lower than in recent surveys. Ten percent put the probability at 51%-75%. No panelists put the odds of recession between 76% and 100%, and for a third consecutive survey, no respondents say that the economy is currently in a recession.

• The outlook for sales shows cautious optimism. In the fourth quarter of 2025 (Q4 2025) sales were steady or higher for most businesses. Forty-six percent of respondents report activity was unchanged from Q3 2025, while 42% report gains. Notably, 56% expect sales to rise over the next three months—the highest percentage holding this view since July 2024. Another 38% anticipate sales to be stable, and just 6% project declines.

• Profit margins are under pressure, but improving. Businesses continue to face margin compression from elevated costs, although signs of relief have emerged. For the first time in four quarters, more firms report higher profits (32%) than lower profits (21%) during the last three months, while nearly half (47%) indicates that margins were unchanged.

• When asked to list the biggest downside risks to their company’s outlook, the three most frequently mentioned responses were “an overall demand slowdown” (cited by 50% of respondents), “weakening demand for their organization's product or services” (44%), and “policy uncertainty” (34%).

• When asked to list the biggest upside risks to their company’s outlook, the three most frequently mentioned responses were “improved customer demand for your product or service” (48%), “U.S. avoids economic recession” (cited by 46% of respondents), and “lower interest rates” (42%).