U.S. small- and mid-sized business owners have grown markedly more optimistic in their outlooks for sales and profits, and soon expect to increase hiring and prices, a new survey showed on Thursday.
Seventy percent of respondents said they expect to increase sales in the current half-year, up from 53 percent of those polled six months earlier, according to the survey released Thursday by PNC Financial Services Group Inc., a Pittsburgh-based bank.
Fifty-nine percent expect to increase profits, up from 52 percent last fall, and 50 percent expect to be able to pass on higher costs to customers, up from 34 percent. One-third expect to add jobs, up from 25 percent, and 62 percent expect to increase salaries.
Small business owners are showing resilience in the face of rising U.S. interest rates, soaring oil prices, a seesaw stock market and an uncertain geopolitical outlook.
“They are a very important, bread-and-butter part of what makes the U.S. economy tick,” Stuart Hoffman, PNC’s chief economist, said in an interview. “Big corporations, especially public ones, get more visibility in the media, but collectively small businesses are a big part of what makes the economy, and in particular the job market, move.”
More than half of those surveyed have been in business for over 20 years.
Hoffman said businesses’ ability to charge more is a focus of Federal Reserve Chairman Alan Greenspan, who has raised the Fed’s key short-term interest rate, the federal funds rate, seven times since June to a current 2.75 percent.
The survey results are “more evidence that businesses are flexing their pricing power muscles, and that the Federal Reserve is not likely to stop raising rates,” Hoffman said. He expects a 3.75 percent Fed funds rate by year-end.
Tempered economic outlook
Notwithstanding growth plans, survey participants have tempered their expectations for the U.S. economy.
Just 20 percent are optimistic about growth prospects, down from 30 percent last fall, while 18 percent are pessimistic, up from 15 percent.
The declining optimism parallels a drop in consumer confidence, which fell in March to its lowest level since November, The Conference Board said on Tuesday.
Economic growth nevertheless remains brisk as gross domestic product, a measure of output within U.S. borders, rose at a 3.8-percent annualized pace in the fourth quarter, the Commerce Department said on Wednesday.
Small business owners are worried about escalating costs. Some 71 percent expect higher health-care costs, up from 51 percent last fall while two-thirds expect suppliers to charge more.
Hoffman sees risks to small business owners’ expectations for their businesses.
“Implicitly, some of the biggest risks are if materials costs escalate rapidly,” such as oil, he said. “Other risks are if interest rates rise more sharply than anticipated, or a terrorist attack shakes consumer and business confidence.”
Harris Interactive Inc. conducted the telephone survey for PNC with 1,671 small- and mid-sized businesses between late January and early March. The margin of error is plus or minus three percentage points.
