The national economy's woes are beginning to significantly impact the outlook for small and mid-sized businesses, according to PNC's new spring findings. The survey gauges the mood and sentiment among small business owners, who represent the bedrock of the American economy.
"The inherent optimism we have found among these business owners is absent in these new findings, reinforcing our view that the U.S. economy is falling into a short and shallow recession for the first half of this year," said Stuart Hoffman, chief economist for the PNC Financial Services Group, Inc. (NSYE: PNC).
Stimulus Plan: Boost Or Bust?
The majority of owners are also doubtful that the federal fiscal stimulus plan will boost their business, PNC found. More than six in 10 (63 percent) expect to see "little to no benefit" from the package. Regionally, owners in the Midwest are the most pessimistic as only 8 percent expect to benefit, followed by the West (11 percent) then Northeast and South (both 19 percent).
Among the one out of three (35 percent) that expect to see some benefit, the expectation is higher among owners of wholesale and retail companies compared to manufacturing and service firms.
Hoffman countered that the stimulus package, coupled with the Fed's most recent interest rate cuts and injection of liquidity into the markets, will be a "fiscal shot of adrenaline to help lift economic and job growth in the latter half of this year."
Key Findings: Cost Pressures, Pricing Power
Consistent with their fears of recession, business owners are less optimistic about the performance of their company during the next six months. About one in five (19 percent) expect their profits will decrease in the near term, a record high for the survey.
Likewise, one in 10 (10 percent) expect to reduce the number of full-time employees, while two-thirds (66 percent) say there will be no change in employment levels over the next six months. PNC also found:
- Cost Pressures: Cost pressures remain a concern for the majority, but there is less pressure from employee compensation and benefits. Nearly two out of three (61 percent) expect to pay higher prices to suppliers, which is little changed from our two previous surveys. Only (38 percent) expect an increase in employee compensation over the next six months. Fewer employers (50 percent) are expecting higher healthcare costs.
- Selling Prices: A stable 43 percent plan to pass along some portion of their higher costs in the form of higher selling prices to customers. Of those who plan to raise prices, nearly one-quarter (24 percent) report favorable market conditions will allow it while three-quarters (73 percent) are attempting to preserve profit margins.
"The outlook for business pricing power remains stable, which reinforces PNC's forecast that consumer price inflation will slow down in the latter half of the year, especially as energy and other commodity prices and the U.S. dollar stabilize," Hoffman said.
- Credit Availability: Nearly one out of five (18 percent) business owners - compared to 10 percent in the autumn - say it is more difficult for them to obtain credit recently than it was three months ago. Only one out of seven (14 percent) business owners say that it is easier to get credit now. Plans for capital spending have declined across a broad range of industries.
- House Prices: Nearly half (48 percent) expect house prices in their area to decrease during the next 6-12 months compared to 43 percent in the autumn. Among those who expect a decrease, a growing amount say the decline will have a negative impact on their business, calling for them to reduce the number of full-time employees and limit capital spending.
