U.S. small and mid-sized business owners intend to manage through the recession through reductions in capital spending and expenses amid divided opinions about the benefits of the federal stimulus program, according to the PNC Economic Outlook survey's newest findings.

The spring findings in the PNC survey, which began in 2003, provide insights into how the nation's business owners are coping with the economic slump and the implications for the financial recovery. A record-high 71 percent are pessimistic about the prospects of the U.S. economy during the next six months compared to 55 percent last fall. One-third (36 percent) are pessimistic about their own company's prospects - versus 29 percent last fall.

"These findings support PNC's forecast that the U.S. economy will continue to suffer into the second half of the year," said Stuart Hoffman, chief economist for The PNC Financial Services Group, Inc. "We forecast only a small positive for real GDP growth in the fourth quarter of 2009 as the economy waits for 2010 to feel real traction from the various federal policy stimulus initiatives."

Coping Strategies

The small business survey, which gauges the mood and sentiment of the bedrock of the American economy, revealed the following insights into owners' outlook and coping strategies:

* Weaker sales, profits and hiring: A record-low one out of four (26 percent) expect an increase in their sales during the next six months while 21 percent anticipate profits to rise. Only 12 percent expect to hire full-time employees compared to 23 percent one year ago.

* Bunker mentality: Only 29 percent plan to take out a new loan or line of credit over the next six months; 79 percent plan to reduce capital spending; and 77 percent intend to conserve cash and keep more bank deposits on hand.

* Squeezing expenses: 90 percent plan to reduce or eliminate business expenses over the next six months; one in four (23 percent) plan to lay off employees; 67 percent will look to get their receivables faster.

* Pricing power short-circuited: Only 19 percent plan to raise prices to preserve profit margins since few think market conditions will allow a hike.

Views on Stimulus Plan, Housing, Energy

Business owners are clearly divided on the benefits of the federal economic stimulus program. While 54 percent see a "slight" to "significant" benefit for businesses, 46 percent foresee no benefit at all.

Asked to rank the effect of the elements on the economic recovery, respondents are most likely to expect positive outcomes from: Tax cuts or credits for businesses (81 percent); grants to state and local governments for infrastructure projects (67 percent); and tax cuts for individuals except the highest income families (62 percent). Sixty percent expect investments in energy to have a positive effect and 55 percent are positive about investments in new technology for health care and education. Other findings include:

* Impact of Energy Prices: A majority (57 percent) say falling energy prices have had a positive impact on their business. Hoffman said a surprising 14 percent say falling energy prices have had a major or minor negative impact. Generally, the larger the company, the more positive the reported benefit from falling prices, he noted.

* House Price Woes: Declining house prices are still on the minds of business owners. An increasing proportion (88 percent vs. 78 percent a year ago) believes house prices in their area will remain the same or decrease over the next 6-12 months. Hoffman said this result is consistent with major measures of aggregate house prices that show no end yet to the price slide. "House price expectations are an important factor in consumer spending, so the findings imply an overall expectation for weak consumer spending for the rest of 2009," he added.