"Despite lingering concerns about higher energy prices and interest rates, small business owners are more positive on the near-term outlook for their businesses and the U.S. economy. This is additional evidence supporting our view of a 'soft landing' for the U.S. economy even in the midst of growing problems with subprime mortgage delinquencies," said Stuart Hoffman, chief economist of The PNC Financial Services Group, Inc.
Currently, both the U.S. Senate and House of Representatives have voted to increase the federal minimum wage from $5.15 to $7.25 an hour. The issues in debate include $8.3 billion in proposed tax breaks for small businesses in the Senate version.
Among business owners in all industry sectors, three out of four (76 percent) report the federal minimum wage hike will have little or no impact on their business within the first six months of enactment. The primary reason, PNC's survey found, is that 72 percent already meet higher state minimum wage requirements.
In contrast, 35 percent of retail and wholesale business owners say the federal minimum wage hike would "greatly or somewhat adversely impact" their business within its first six months. Among the concerned owners in these two industry sectors, the impact would be felt by customers and employees alike: 34 percent of these owners would raise selling prices and 29 percent would reduce hiring.
The survey was conducted for PNC between January and March by Harris Interactive, a global market research and consulting firm, with responses from 1,258 business owners and senior decision makers. This survey, done every six months since 2003, gauges the mood and sentiment among business owners about business expectations, economic factors and other issues.
Expectations On the Rise ...
Overall, the outlook among U.S. business owners for sales, profits, hiring and investments for the next six months significantly rebounded to the highs reached in PNC's survey one year ago, after a small decline last Autumn.
"There is a positive lift in business owners' optimism and business expectations from last Autumn, which is consistent with market indicators showing stable interest rates and a decline in energy prices from last year's highs," Hoffman said.
- Sales: 65 percent expect increases during the next six months, compared to 58 percent last Autumn and 67 percent a year ago.
- Profits: More than half (54 percent) expect profits to increase. This compares to 49 percent last Autumn and 54 percent a year ago.
- Hiring: One out of three (32 percent) plan to increase hiring of full-time employees compared to 25 percent last Autumn and 32 percent a year ago.
When it comes to investing in their own business, three out of four (76 percent) have plans for capital spending during the next six months, up from 70 percent last Autumn. Technology equipment, cited by 24 percent of business owners, is most likely to receive the largest spending increase over the next six months with "other types" of business equipment (14 percent) and physical plant (10 percent) a distant second and third, respectively.
... But Tempered by Concerns
Among a list of five choices, higher energy prices remain the dominant concern for business owners with 31 percent citing a hike as having the greatest impact on their business over the next six months. This is significantly down from 50 percent last Autumn. Indeed, energy prices have risen since our survey was concluded in early March. The likelihood of interest rate increases rose to the second greatest concern (24 percent), even as they have stabilized over the past six months.
Consistent with their more upbeat outlook for their own business prospects, business owners are more optimistic about the U.S. economy. Compared to 11 percent last Autumn, a measurably higher 16 percent are now optimistic (rating 8 to 10 on a scale of 1-10) about the next six months.
Reduced Cost Pressures
A significantly lower 61 percent expect to pay higher prices to suppliers, down from 67 percent in both 2006 surveys. An even lower percentage (55 percent) of manufacturers report they expect suppliers' prices to rise. These results likely reflect declines in prices for energy and other basic materials, Hoffman noted.
For prices charged to customers, a stable 39 percent plan to pass along some portion of higher costs in the form of higher selling prices to customers. Of those who plan to raise prices, nearly one-quarter (24 percent) report that business growth and favorable market conditions will allow it.
